"MMM.... Not So Bad?" Or maybe "MMM... Pretty Good." Campbell Soup (CPB) reported the firm's fiscal first quarter financial performance on Wednesday morning. While by certain metrics, such as sales, appear to moderate from their pandemic heights, there is clear evidence that management is adapting quite well to those declines - which was expected - as well as the current state of inflation, which was also expected, just not expected to get this hot.
For the reporting period, Campbell Soup posted adjusted EPS of $0.89 and GAAP EPS of $0.86. This beats Wall Street on both counts, while earnings growth printed at -12%. Revenue generation, however... landed at $2.24B. That was a contraction of 4%, but a mild miss of what Wall Street had in mind. Organic net sales also contracted some 4%, reflecting the expected cycling of year ago retailer inventory recovery.
Breaking sales down further, Meals & Beverages experienced a 7% contraction to $1.266B, while Snacks only suffered a 1% contraction to $970M. The firm reaffirmed full year guidance, which has been adjusted to reflect the exclusion of unrealized mark to market gains and losses on outstanding undesignated commodity hedges until such time that the related exposure impacts operating results.
The CEO and Guidance
Campbell's President and CEO Mark Clouse said, "We are pleased with our first quarter results as consumer demand for our brands remained elevated, and pricing paired with productivity moderated inflation driven margin pressure. Topline was tempered by the expected cycling of year ago retailer inventory replenishment and some industry wide supply chain disruptions. We expect the steps we are taking to continue to address labor challenges, drive net price realization and improve productivity will lead to solid year over year earnings growth in the second half allowing us to maintain our full year fiscal 2022 guidance."
Campbell Soup guides net sales for FY 2022 toward Flat top -2% from prior year revenue of $8.48B. Wall Street had been at $8.42B on this number, so they're in the ballpark. The firm sees expectations for FY 2022 adjusted EPS in a range of $2.75 to $2.85, dragging the midpoint above the $2.76 expected by Wall Street.
Balance Sheet
I don't love this balance sheet. Cash and equivalents are down significantly from a year ago, as are subsequently current assets. Current assets amount to just about 80.2% of current liabilities which have contracted over the past 12 months. Total assets still outweigh total liabilities less equity. Thankfully, both long-term and total debt have contracted over the past 12 months, but more work needs to be done there. This firm's Current and Quick ratios are not up to my standard.
The Chart
Readers will note that all three of my indicators, the RSI, Full Stochastics Oscillator, and the daily MACD are all neutral-ish. The shares have found support three times at almost precisely the same spot, and hit resistance (twice) at the 38.2% Fibonacci retracement level of the entire March through August selloff.
I penciled in the 23.6% Fibonacci retracement myself for you as this charting service doesn't offer it on their model, as this "lesser" publicized Fib level has shown up as potential early resistance this morning.
My Thoughts
I love Campbell Soup, especially the Chicken Corn Chowder. The stock, like the balance sheet, has some issues. The firm pays shareholders $1.48 per year, yielding 3.6%... just to stick around, and that does attract some investors. Can you call a company with a sub 1.0 current ratio a "value stock" though? I'm thinking not.
I do, however, have an idea. I would rather write (sell) $40 CPB puts that expire January 21st for $0.75, or even go out to May for a rough $2.10, and count on that thrice tested support level than I would want to lay out the dough this close to a couple of Fibonacci levels that have already expressed some resistance.
