Packaged food company Campbell Soup (NASDAQ:CPB) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 6.3% year on year to $2.37 billion. It made a non-GAAP profit of $0.75 per share, improving from its profit of $0.68 per share in the same quarter last year.
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Campbell Soup (CPB) Q1 CY2024 Highlights:
- Revenue: $2.37 billion vs analyst estimates of $2.35 billion (small beat)
- EPS (non-GAAP): $0.75 vs analyst estimates of $0.70 (7.5% beat)
- 2024 Guidance: organic sales growth lowered, EPS (non-GAAP) slightly lowered
- Gross Margin (GAAP): 30.9%, up from 30.5% in the same quarter last year
- Free Cash Flow of $100 million, down 74.4% from the previous quarter
- Organic Revenue was flat year on year (beat vs. expectations of a 0.9% year-on-year decline) (5% in the same quarter last year)
- Sales Volumes were flat year on year (-7% in the same quarter last year)
- Market Capitalization: $13.17 billion
With its iconic canned soup as its cornerstone product, Campbell Soup (NASDAQ:CPB) is a packaged food company with an illustrious portfolio of brands.
Shelf-Stable Food
As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales Growth
Campbell Soup is one of the larger consumer staples companies and benefits from a well-known brand, giving it customer mindshare and influence over purchasing decisions.
As you can see below, the company's annualized revenue growth rate of 2.6% over the last three years was weak as consumers bought less of its products. We'll explore what this means in the "Volume Growth" section.
This quarter, Campbell Soup grew its revenue by 6.3% year on year, and its $2.37 billion in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 12.1% over the next 12 months, an acceleration from this quarter.
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Volume Growth
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Campbell Soup generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Campbell Soup's average quarterly sales volumes have shrunk by 3.3%. This decrease isn't ideal as the quantity demanded for consumer staples products is typically stable. Luckily, Campbell Soup was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 5.3% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren't sustainable over the long term unless the business is really really special.
In Campbell Soup's Q1 2024, year on year sales volumes were flat. This result was a well-appreciated turnaround from the 7% year-on-year decline it posted 12 months ago, showing the company is heading in the right direction.
Key Takeaways from Campbell Soup's Q1 Results
We were impressed by how significantly Campbell Soup blew past analysts' organic revenue growth expectations this quarter. We were also glad its full-year earnings guidance exceeded Wall Street's estimates. On the other hand, full year organic revenue growth guidance was lowered. Zooming out, we think this was a mixed, quarter. The stock is flat after reporting and currently trades at $44.60 per share.
So should you invest in Campbell Soup right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.