Mark Close, CEO of Campbell’s Soap Company (CPB), has a message for his investor base: The snack business—led by goldfish crackers and Snyder’s pretzels—is mmm! millimeter! good.
“With half of our business in this great snack-pilot area with a self-help margin story giving us fuel for the future, I think it’s something our investors need to consider as they digest the company’s trajectory,” Clouse said on Yahoo Finance Live (video above).
Campbell Soup investors sure have some to chew on after the company’s results this week showed a tale of two food stories.
For example, Campbell’s saw organic sales grow 12% in its snack business, as consumers continued to show a penchant for eating on the go.
The division’s operating profit grew 41% year-over-year, also helped by higher prices.
Jefferies analyst Rob Dickerson estimated that the snack division posted a 16% operating profit margin in the quarter, the highest since Campbell bought Snyder’s-Lance for $6.1 billion in 2018.
In a note to a client, Dickerson said snacks are Campbell’s “growth engine.”
But another part of the engine stalled in the quarter — Campbell’s famous soup project.
Sales of American soup were down 11% from the previous year.
Campbell blamed a tough comparison a year ago, and stores have restocked their shelves amid better post-pandemic availability. The company also advocated that shoppers have more than expected resistance to price hikes.
Analysts added that increased competition from private label soup players is also an issue and may continue to impact profit margins for the business in the coming quarters.
“Campbell is facing pressure from a private company, and the company has noticed promotional activity picking up as supply chain performance improves,” noted Stifel analyst Matthew Smith.
Clouse says the company will continue to push its soup innovation—like spicier flavors—under the Chunky brand.
Other Campbell-owned soup brands, such as Healthy Request, may need steeper price points to compete with private players, executives hinted on an earnings call.
Mixed performance in the quarter left Wall Street mixed due to Campbell’s near-term outlook for the stock.
“Volumes remain a risk, especially as soups face continued pressure from private label brands and continue to lose share, while snacks may require additional brand investment to support the growth engine,” Dickerson added.
Smith echoed the sentiment.
“Shares are currently trading at less than 11 times using our calendar 2023 EBITDA [operating profits] Estimate, 15% discount to peers, which we believe appropriately balances the slower top-line trajectory and that risk volumes do not recover as prices decline,” Smith said.
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