Campbell Soup prices didn't rise for first time in three years

By Tomi Kilgore

Stock falls as Campbell's snacks business, which has been the most resilient, is now facing pressure

Shares of Campbell Soup Co. turned lower Wednesday, after the soups and foods company said that while consumers are recovering as inflation has moderated, the once-resilient snacks business is now seeing weakness.

Regarding inflation, Campbell's fiscal third-quarter marked the first time that prices didn't rise in either the meals and beverages or snacks segments since the fiscal second quarter of 2021.

The stock (CPB) slumped 1.8% toward a seven-week low in morning trading. That reversed a gain of 0.3% seen moments after the open, and a premarket rally of as much as 3.5% just after the earnings were released.

Chief Executive Mark Clouse said on the post-earnings call with analysts that there was "significant growth" in the percentage of the top 50 food categories that either maintained or increased household penetration, as pricing has normalized. He noted this trend is substantiated by an improvement in consumer confidence data for the first time in a while.

"Unquestionably, as prices have begun to moderate, consumers are starting to recover," Clouse said, according to an AlphaSense transcript.

He said, however, that the pace of the recovery has varied depending on the category and the consumer's income level.

"For example, our snacks business, which has been the most resilient to date, is now facing some short-term pressure, especially among lower-and-middle income consumers," Clouse said. "We are seeing some modest improvement in the snacking segment in the most recent weeks, with the expectation of more of a full recovery in the first half of fiscal 2025."

For the quarter to April 28, net income fell to $133 million, or 44 cents a share, from $160 million, or 53 cents a share, in the same period a year ago. Excluding nonrecurring items, such as acquisition-related costs, adjusted earnings per share of 75 cents beat the FactSet consensus of 70 cents.

Net sales grew 6.3% to $2.37 billion, above the FactSet consensus of $2.34 billion.

Among the company's business segments, Meals & Beverages sales rose 14.8% to $1.27 billion, helped by the closing of the Sovos Brands acquisition during the quarter, while Snacks sales fell 2.1% to $1.10 billion.

Within Meals & Beverages, volume and mix inched up 1% from a year ago, while prices slipped 1%. Operating earnings jumped 26% to $229 million.

Sales in the segment increased as gains in the foodservice business was partially offset by lower sales in the U.S. retail channel, where beverages, pasta and Swanson canned chicken declined but Prego sauce and soup increased.

For snacks, volume and mix fell 1%, prices were flat and operating earnings declined 7% to $167 million.

The weakness was driven mostly by declines in third-party partner brands, bakery and contract manufacturing, while power brands sales increased, amid resilience in Goldfish and Late July.

The company also noted that cookies were a "tough category," as there has been a "fair amount" of trading down by consumers to private-label offerings.

Looking ahead, the company revised its full-year guidance ranges to account for the acquisition of Rao's parent Sovos Brands Inc., which was completed on March 12.

The sales-growth outlook was raised to 3% to 4% from down 0.5% to up 1.5%, and the EPS outlook was lowered to $3.07 to $3.10 from $3.09 to $3.15.

Campbell's stock has tacked on 0.4% year to date, while the Consumer Staples Select Sector SPDR ETF XLP has gained 7.5% and the S&P 500 has advanced 11.5%

-Tomi Kilgore

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06-05-24 1053ET

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