Campbell Soup (CPB) shares soared earlier this week after the company reported better-than-expected earnings for its first quarter of fiscal 2017. But investors hoping for more upside in the next 12 months shouldn't hold their breath.
The food giant posted adjusted earnings per share of $1.00, up 5.0% from a year earlier. Sales came in flat, at $2.20 billion. Adjusted EPS beat the consensus forecast for 95 cents, while revenue matched expectations.
Campbell shares are up 4.6% since the report was released, but the company still faces a lot of uncertainty as it tries to navigate shifting consumer tastes.
For starters, it leaned heavily on its Global Biscuits and Snacks division to keep its top line from sliding in the latest quarter. This unit's revenue rose 3%, offsetting a 6% drop at Campbell Fresh (which includes Bolthouse carrots and beverages and Garden Fresh gourmet snack foods) and flat sales at Simple Meals (V8 juices and Plum Organics baby food).
That's disappointing, because Campbell Fresh should be a growth area for the company as more shoppers opt for fresh over packaged fare: Sales of locally produced food, for example, are expected to rise from $11.7 billion in 2014 to $20.2 billion in 2019. Organic-food sales, meanwhile, jumped 11% last year.
To be sure, Campbell isn't the only big food company struggling to grow sales these days. Kraft Heinz and General Mills have also reported soft demand in recent quarters.
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Campbell has attempted to profit from the shift through a series of acquisitions, including Bolthouse for $1.55 billion in 2012; Plum Organics for $249 million in 2013; and Garden Fresh for $231 million in 2015.
But these deals have brought more than their share of headaches. Plum, for example, announced two recalls: one in late 2013, over a packaging flaw that could cause spoilage, and another in March 2014, due to defective spouts that could break apart and cause choking.
Then last June, Bolthouse recalled 3.8 million protein shakes and cappuccino beverages due to reports of illness. The company also made the ill-fated decision to harvest carrots too early, resulting in undersized vegetables that irked shoppers.
Campbell has since brought in a new management team in the hopes of returning Campbell Fresh to growth in the second half of fiscal 2017, but it's an open question whether it will hit that target, given the business's recent history.
Meantime, the stock trades at a price-to-earnings ratio of 18.6, based on estimates of fiscal 2017 earnings. That P/E is slightly higher than the industry's 18.4. And the analyst community, for its part, isn't overly optimistic. The average 12-month price target on Campbell stock is $58.00, which isn't much higher than the stock's current level of $57.57. That's not a lot of upside in light of the risks and rising competition from smaller, locally based competitors that Campbell faces.
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