Campbell Soup (CPB) Q1 earnings preview: Focus turns to debt lowering

Campbell Soup Company (NYSE: CPB) is set to release its earnings results for the first quarter of 2020 on Wednesday before the market opens. The results will be impacted by the UK snacks divestiture and Partner Brands’ distribution declines in the snacks segment.

The company has been investing in shifting from a margin expansion play to a growth story and this could take time to reflect in the accounts. The outperformance in certain key categories is expected over time. Also, Campbell faces acquisition-related headwinds as well as unrealized $3 billion in sales proceeds.

The company had $384 million of aggregate capital expenditures during 2019. Campbell expects to spend about $350 million for capital projects in 2020, which includes capital projects for Campbell International. This includes the implementation of an SAP enterprise resource planning system for Snyder’s-Lance and a new manufacturing line for our snacks business.

During the first half of 2020, Campbell Soup expects to complete the sale of its Arnott’s and international operations and use the net proceeds from this divestiture to reduce debt. The company has been using the net proceeds from the businesses it sold in 2019 to lower its debt, which remained at about $8.7 billion as of July 28, 2019.

Analysts expect the company’s earnings to decrease by 10.10% to $0.71 per share and revenue will drop by 18.40% to $2.2 billion for the first quarter. The company has surprised investors by beating analysts’ expectations in all of the past four quarters. The majority of the analysts recommended a “hold” rating with an average price target of $42.77.

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For the fourth quarter, Campbell Soup slipped to a loss from a profit last year due to higher costs and expenses. The top line rose by 2% driven by gains in Snacks, as well as Meals & Beverages. Campbell achieved $45 million in savings under its multi-year cost savings program, inclusive of Snyder’s-Lance synergies.

Looking ahead into fiscal 2020, the company expects net sales growth in the range of 1% to 3% and adjusted earnings to increase by 9% to 11% year-over-year to the range of $2.50 to $2.55 per share. Adjusted EBIT is predicted to be in the range of 2% to 4%.

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