Summary
- Campbell Soup Company reported attractive sales and adjusted earnings that were in line with estimates for the fourth quarter of its 2022 fiscal year.
- The overall picture for the company remains robust despite some minor bumps in the road.
- Add on top of this how cheap shares are, and the company should make for an attractive long-term prospect for investors to consider.
On September 1st, the management team of Campbell Soup Company ( CPB ) announced financial results covering the final quarter of the company's 2022 fiscal year. They also, in this release, provided details about their expectations for the 2023 fiscal year. Although the company did experience some weakness in some parts of its operations, the overall picture looks to be positive. Management beat expectations when it came to sales but missed slightly when it came to earnings. On the earnings side, however, the company was in line with expectations on an adjusted basis. Guidance for 2023 is also looking positive, with organic growth set to come in strong considering the company's size and the competitiveness of the space in which it operates. All things considered, I fully expect the enterprise to continue to outperform the broader market moving forward, leading me to retain my 'buy' rating on its stock for now.
An interesting quarter
Back in late July of this year, I wrote an article that took a bullish stance on Campbell Soup. In that article, I acknowledged that the company had something of a mixed operating history. Having said that, I still believed that the company was a solid player that would likely fare well over the long haul. Because of this, and because of how cheap shares were relative to similar players, I ended up rating it a 'buy', reflecting my belief that it would likely outperform the broader market moving forward. Only a short time has passed since then, but this call has so far proven to be correct. While the S&P 500 has declined by 0.7%, shares of Campbell Soup have generated a profit for investors of 1.8%. In the grand scheme of things, this disparity is not all that great. But in a difficult market, everything can help.
In my prior article, we only had data covering through the third quarter of the company's 2022 fiscal year. Fast forward to today, and we now have data covering the final quarter of that year as well. And what we do have looks mixed but generally positive. In the final quarter, sales for the company came in at $1.99 billion. This represents an increase of 6.1% over the $1.87 billion generated the same time last year. Unlike some companies, management has provided a good deal of detail on these results. To be clear, the company benefited entirely from organic growth. There were no material impacts caused by currency fluctuations or mergers and acquisitions-based activities. Volume and product mix changes negatively affected the company to the tune of 4%, with a decline of 6% under its Meals & Beverages operations. Promotional spending also hit the company to the tune of 3%, with the biggest impact being a 4% decline under the Snacks segment. The real driver of revenue growth, then, related to price increases and sales allowances. Combined, these pushed sales up by 14% year-over-year. Given the inflationary conditions we are dealing with today, this should not be much of a surprise.
As a result of this fairly strong quarter, where management beat analysts' expectations to the tune of over $4.1 million, overall revenue for 2022 came in at $8.56 billion. That represents an increase of 1% over the $8.48 billion generated the same time one year earlier. When it comes to the 2023 fiscal year, the company has even greater expectations. Organic revenue should expand by between 4% and 5% year-over-year. Assuming this comes to fruition and ignoring any impact that foreign currency and mergers and acquisitions activities might have on the picture, this should imply revenue of between $8.90 billion and $9.08 billion. Management attributes this favorable outlook to continued elevated consumer demand for its brand portfolio. Sales growth should take place across both of the company's segments and the firm expects improvements that it has made in its own supply chain to further help.
On the bottom line, there were some mixed results for the final quarter of the year. Net income, for instance, came in at just $96 million. That translated to earnings per share of 32 cents, missing analysts' expectations by $0.21 per share. On an adjusted basis, however, the company generated a profit of $0.56 per share. That was in line with expectations and beat prior year's results of $0.52 per share. The spread between official earnings per share and adjusted earnings involved one-time restructuring charges and other related costs of $0.04 per share, pension and postretirement adjustments of $0.08 per share, and commodity mark-to-market adjustments of $0.13 per share. These issues also had a negative impact on the company's operating cash flow. This metric came in at $80 million for the latest quarter. That compares to the $154 million generated at the same time last year. If we adjust for changes in working capital, however, operating cash flow would have risen from $265 million to $272 million. Meanwhile, EBITDA for the company was also on the rise, climbing from $306 million last year to $375 million this year. Naturally, these results had an impact on the 2022 fiscal year as a whole, as the chart above illustrates.
When it comes to the 2023 fiscal year, management expects EBIT to rise by between 1% and 5%. This is different from the EBITDA of the company, which management does not offer any guidance for. But given how close they are to one another, I will assume a similar growth rate for the latter. At the midpoint, this would imply a reading of $1.68 billion. No guidance was given when it came to operating cash flow. But if we assume that it will increase at the same rate that EBITDA is expected to, we should anticipate a reading of $1.30 billion. Earnings per share, meanwhile, should come in at between $2.85 and $2.95. At the midpoint, that would translate to net income of $875.8 million. The company should be aided by the fact that, through the fourth quarter of its 2022 fiscal year, it managed to achieve, according to management, $850 million of total savings under its multi-year savings plan. This includes synergies associated with its purchase of Snyder's-Lance. The company continues to be on track, it said, to deliver savings of $1 billion by the end of 2025. Along the way, management is also buying back a significant number of shares. At the end of the fourth quarter, the company had $375 million under its $500 million share repurchase program still available and $172 million under its $250 million anti-dilutive share repurchase program. For the years as a whole, the company repurchased 3.8 million shares for $167 million on top of the $451 million paid out to shareholders in the form of distributions.
Given these figures, we can see that the company is trading at a forward price-to-earnings multiple of 16.8. This is down from a 19.5 reading we get using 2022's results. The price to adjusted operating cash flow multiple should drop from 11.7 using 2022's figures to 11.3 on a forward basis. Meanwhile, the EV to EBITDA multiple should decline from 11.9 to 11.6. As part of my analysis, I also compared the company to five similar firms. On a price-to-earnings basis, these companies ranged from a low of 14.5 to a high of 28.8. Using our forward estimates compared to these forward estimates, two of the five companies were cheaper than Campbell Soup. Using the price to operating cash flow approach, the range was between 10.6 and 28.1. In this case, one of the five companies was cheaper than our prospect. And when it comes to the EV to EBITDA approach, the range is between 11.1 and 19.2. In this scenario, one company was cheaper than our target, while another was tied with it.
Company | Price / Earnings | Price / Operating Cash Flow | EV / EBITDA |
Campbell Soup Company | 16.8 | 11.3 | 11.6 |
The J.M. Smucker Company ( SJM ) | 20.8 | 13.3 | 12.3 |
Conagra Foods ( CAG ) | 14.5 | 10.6 | 11.6 |
Lamb Weston Holdings ( LW ) | 28.8 | 22.7 | 15.5 |
The Kraft Heinz Company ( KHC ) | 15.3 | 14.1 | 11.1 |
The Hershey Company ( HSY ) | 28.6 | 28.1 | 19.2 |
Takeaway
All things considered, I would say that the fundamental picture for Campbell Soup remains solid. While it is true that the firm experienced some weakness in its results in the latest quarter, that pain really seems to be more associated with one-time events. Revenue is forecast to grow nicely moving forward, and shares are trading at levels that are near the low end of the scale compared to similar firms. For all of these reasons, I've decided to retain my 'buy' rating on the company for now.
For further details see:
Campbell Soup Company Q4 2022 Results: Still A Solid Play Despite Some Bumps In The Road