A double whammy of rapidly rising costs and dipping sales caused Campbell Soup Co.’s (CPB, Financial) earnings for its second quarter of fiscal year 2022 to drop compared with the year-ago period. Even though results were only slightly below analysts’ estimates, it still shows just how badly inflation is affecting the company.
On Wednesday, the 150-year-old company posted $2.21 billion in sales for its fiscal second quarter ended Jan. 30, down 3% from a year earlier and below the $2.24 billion figure expected by analysts surveyed by FactSet.
The company’s dip in sales was partially offset by higher prices. Campbell’s overall gross margin fell from 34.4% to 30.3% due to inflation, supply-chain challenges and unfavorable volume mix, the company said. Indeed, management pointed a finger at inflation as being largely responsible for a 19% drop in operating earnings in the meals-and-beverages business.
Shortly before the close of trading on Wednesday, Campbell shares were trading at $42.93, up about 1.49%, or 63 cents per share. The stock “demonstrated a mixed performance when compared to some of its competitors Wednesday,” MarketWatch pointed out, “as Unilever PLC (UL,) fell 0.31% to $52.14, Mondelez International Inc. (MDLZ, Financial) fell 0.13% to $67.96, and McCormick & Co. Inc. (MKC, Financial) fell 0.51% to $102.09. Trading volume, at 1.7 million, remained 1.3 million below its 50-day average volume of 2.9 million.”
Commenting on the quarter, Mark Clouse, Campbell’s President and CEO, said in a statement, “As expected, our second quarter was challenging as we lapped a difficult comparison and navigated labor and supply constraints, made even tougher by the Omicron surge. However, heading into the second half of the fiscal year, we are seeing labor availability and service levels improve, better mitigation of inflation with pricing, and strong levels of demand all underpinning our confidence in our delivery of full-year guidance.”
“Like many other packaged-food companies, Campbell is dealing with difficult comparisons with the year-ago period, when the pandemic led more people to eat at home,” reported Barron's. “In addition, the company and its peers are dealing with supply-chain issues and higher input costs due to inflation. Campbell predicted core inflation to be in the low double-digits for the full year.”
Executives have already raised prices, and they have not ruled out further price hikes. Their saving grace is that other companies are following the same strategy - a potential cause for anxiety ahead when one or more players could ignite a price war by achieving more cost-efficient operations or securing better supply-chain deals.
The company’s full-year guidance reflects expected continued strong demand for the balance of the year with steady supply recovery and improved service levels particularly in the fourth quarter as labor recovers. “However, core inflation is now expected to be low double-digits for the full year.” For all of 2022, Campbell said it is projecting that it will earn between $2.75 and $2.85 a share, bracketing the $2.79 consensus estimate.
