Campbell Soup Earnings: Stepped Up Competition Amid Weak Consumer Spending Overshadows Strong Sales

The market soured on wide-moat Campbell Soup even after it posted decent third-quarter marks—5% organic sales growth and 60 basis points of adjusted gross margin degradation to 30.9%—as seen by the 8% rout in shares. We attribute the reaction to concerns surrounding the competitive backdrop (which management suggested has gotten more promotional) and the state of consumer spending (which has weakened). But the firm appeared unmoved, reaffirming its outlook for 8.5%-10% sales growth and $2.95-$3.00 in adjusted EPS, which square with our 9.4% and $2.96 respective preprint estimates. We don’t expect to alter our $58 fair value estimate (beyond time value) or our long-term forecast (low-single-digit sales and high-single-digit adjusted EPS growth) but now view shares as attractive, trading at a 20% discount to our valuation.