Campbell's Shares Tumble After Dividend Cut As UBS Warns Of "Another Tough Year"
Shares of soup-and-snack maker Campbell's tumbled the most in nearly six months in premarket trading after the company swung to a quarterly loss, slashed its dividend, and warned that weakening demand and elevated costs were squeezing margins.
Campbell's expects fiscal 2027 adjusted EPS of $1.65 to $1.80, missing the Bloomberg Consensus estimate of $1.84. Net and organic sales are expected to contract by 2% to 4%, signaling that the consumer slowdown is far from over, with national gas prices still above the politically sensitive $ 4-per-gallon level.
Campbell's fourth-quarter results were uneventful, with adjusted EPS matching estimates and revenue missing consensus by just $10 million. Within the earnings report, however, the quarter revealed a stark consumer split.
Meals and beverages delivered 3% organic growth, driven entirely by stronger volume and mix. Snacks deteriorated sharply, with organic sales and volume/mix falling 6%, worse than expected, even as a 1% pricing benefit modestly exceeded forecasts. This suggests cash-strapped consumers are eating more meals at home.
"Our performance is not where it needs to be, and we are taking decisive action to improve it," CEO Mick Beekhuizen wrote in a statement.
UBS maintained its Sell rating and $18 price target on Campbell's after the earnings report delivered mostly in-line quarterly profit but issued another bleak outlook. The target implies roughly 24% downside from Wednesday's close of $23.78.
"Guidance points to another tough year ahead," UBS analyst Peter Grom wrote in a first take note earlier on Thursday.
Grom continued:
Initial Reaction: Slightly Negative
Although our conversations would suggest sentiment continues to lean negative over the long-term, many seemed to believe expectations for the quarter/initial FY27 guidance were already quite low with some believing CPB could be the next Packaged Food stock to outperform following an earnings re-base. As it pertains to the quarter, we think the result this morning more or less played out as expected as EPS was in-line as weaker organic sales growth was offset by slightly better margin performance. From a guidance standpoint, while the headline figures are below the Street across the board, we think the midpoint is only modestly below buyside expectations. Lastly, the company announced a change in their dividend policy and while we do not think the news this morning will be viewed as a complete surprise, we also do not believe this change was fully priced in. As has been the case across the group, the reaction today will largely hinge on whether investors can gain comfort that the outlook is fully de-risked but based on the quarter/outlook/dividend cut, we would still expect shares to open lower (currently indicating -6.9%).
FY27 Guidance Below/Ahead of Expectations
For FY27, CPB expects organic sales to decline -4% to -2%, compared to UBSe/Visible Alpha estimates of -2.2%/-1.0%. The company expects EBIT to decline -12% to -7%, compared to UBSe/Visible Alpha estimates of -15.7%/-8.8%. The company expects adjusted EPS to be in the range of $1.65-$1.80 vs. UBSe/Str. of $1.72/$1.83. Other key assumptions include: combined raw materials/packaging inflation of +5-6%, doubledigit logistics inflation, productivity above 4%, total operating expenses down slightly on a dollar basis (including $50M impact from resetting incentive compensation), marketing and selling to increase as % of sales, $100M of cost savings, interest expense of $345-$350M, noncontrolling interest of $15-$20M, and a diluted share count of 308M.
F4Q Review: Weaker Topline Offset By Better Margins, Driving In-Line EPS
CPB reported 4Q EPS of $0.39, which was a penny above our forecast ($0.38) but in-line with Visible Alpha consensus ($0.39). Organic sales for the quarter were down -1.0%, below our forecast (-0.2%) and Street expectations (-0.4%). From a segment perspective, growth was below expectations in Meals & Beverages (+3.0% vs. UBSe/St. +3.9%/+3.7%) and Snacks also below expectations (-6.0% vs. UBSe/St. -5.0%/-5.2%). That said, gross margin of 28.6% was above our forecast (28.2%) and consensus (28.4%), and OPM of 11.3% was also above our forecast and consensus of 10.3%/11.2%, respectively.
Campbell's shares were down nearly 15% year-to-date through Wednesday's close. The stock fell another 6% in premarket trading, and if those losses hold through the cash session, it would mark the largest one-day decline since the 7% selloff on March 11.
Our read-through of the earnings report suggests Campbell's is confronting stagflation in the grocery aisle. National gasoline prices above $4 are adding further pressure on lower-income consumers, who have been reducing discretionary purchases or trading down to cheaper alternatives.