Stock Story -
Packaged food company Campbell Soup (NASDAQ:CPB) reported results in line with analysts' expectations in Q1 FY2024, with revenue down 2.2% year on year to $2.52 billion. It made a non-GAAP profit of $0.91 per share, down from its profit of $1.02 per share in the same quarter last year.
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Campbell Soup (CPB) Q1 FY2024 Highlights:
- Revenue: $2.52 billion vs analyst estimates of $2.52 billion (small miss)
- EPS (non-GAAP): $0.91 vs analyst estimates of $0.88 (3.8% beat)
- Free Cash Flow of $31 million, down 72.3% from the previous quarter
- Gross Margin (GAAP): 31.3%, down from 32.4% in the same quarter last year
- Organic Revenue was down 1% year on year
- Sales Volumes were down 5% year on year
Packaged FoodAs America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods, prepared meals, or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options.
Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales GrowthCampbell Soup is one of the larger consumer staples companies and benefits from a well-known brand, giving it customer mindshare and influence over purchasing decisions.
As you can see below, the company's annualized revenue growth rate of 1.7% over the last three years was weak as consumers bought less of its products. We'll explore what this means in the "Volume Growth" section.
This quarter, Campbell Soup reported a rather uninspiring 2.2% year-on-year revenue decline, missing Wall Street's estimates. Looking ahead, analysts expect sales to grow 1.3% over the next 12 months.
Volume GrowthRevenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Campbell Soup generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Campbell Soup's average quarterly sales volumes have shrunk by 4.4%. This decrease isn't ideal as the quantity demanded for consumer staples products is typically stable. Luckily, Campbell Soup was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 6.3% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren't sustainable over the long term unless the business is really really special.
In Campbell Soup's Q1 2024, sales volumes dropped 5% year on year. This result was a further deceleration from the 1% year-on-year decline it posted 12 months ago, showing the business is struggling to push its products.
Key Takeaways from Campbell Soup's Q1 Results Sporting a market capitalization of $12.01 billion, more than $91 million in cash on hand, and positive free cash flow over the last 12 months, we believe that Campbell Soup is attractively positioned to invest in growth.
It was encouraging to see Campbell Soup slightly top analysts' full-year earnings guidance expectations. That stood out as a positive in these results. On the other hand, its operating margin, EPS, and free cash flow missed Wall Street's estimates. Overall, the results could have been better. The stock is flat after reporting and currently trades at $40.75 per share.