Thursday, March 5, 2020

Campbell Soup Shares are Best Served Hot

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What’s happening: Shares of Campbell Soup Co jumped to a new 52-week high on Wednesday, after the 150-year-old company reported stronger-than-expected results for its fiscal second quarter and raised its profit outlook for the full year.

What happened: Campbell Soup shares climbed more than 10% in regular trading hours after healthy demand for soups and snacks helped the company beat quarterly estimates.

Investor sentiment turned positive for Campbell, amid coronavirus fears, which last week led to the Wall Street’s worst weekly performance since the 2008 financial crisis.

  • Campbell swung to fourth-quarter earnings of $1.21 billion, versus a loss of $59 million reported in the same quarter in the previous year.
  • Although sales slipped to $2.162 billion, the figure beat expectations of $2.154 billion.
  • Campbell’s adjusted earnings declined to 72 cents per share, from 77 cents per share in the same period last year, while still exceeding the consensus estimate of 66 cents per share.

Why it matters: Demand for Campbell’s condensed soups and broths was driven by strong investments in the unit, which resulted in 1% growth in US soup sales during the quarter. The company’s sales were partly hit by a decline in ready-to-serve soup sales. The Camden, New Jersey-based company also invested heavily in its snacks business to keep up with changing consumer tastes. Increased demand for Kettle Brand and Goldfish crackers lifted organic sales at its snacks unit by 2%.

Last year, Campbell announced the sale of its fresh food unit and some international snack brands to focus on boosting its major soup and snacks sales. The divestments helped the company lower its debt and lift its fiscal 2020 earnings forecast by 5 cents per share. Campbell now expects adjusted earnings of $2.55-$2.60 per share, versus its earlier projection of $2.50-$2.55 per share.

With shoppers stocking up on canned goods following the spread of coronavirus in the US, Campbell has been witnessing a surge in demand. The company has reported growth in sales of its tomato, chicken noodle, cream of chicken and cream of mushroom soups.

Campbell's shares have spiked 24% since Mark Clouse was named CEO in December 2018, following the proxy battle with activist investor Daniel Loeb and his hedge fund Third Point LLC. Referring to the latest quarter, Campbell CEO Clouse said, “We showed marked improvement and executed well in what was the most important quarter for soup.” However, CFRA analyst Arun Sundaram pointed out that the company’s results are likely to be affected by the coronavirus outbreak in the future.

How the shares responded: Campbell’s shares have significantly outperformed the S&P 500 index over the past 12 months. During this period, the stock has gained 46%, versus a mere 11% increase in the S&P 500 index. The company’s shares have gained more than 13% in the last five days, after the coronavirus outbreak in the US.

What to watch: With consumers stockpiling soups due to coronavirus, the company has increased its production for soups and is likely to deliver strong third-quarter sales. Investors will be looking out for any news suggesting a decline in demand.

The Markets Today

     

Investors will be keeping an eye on US stocks today, with all three major indices recovering significantly yesterday. In fact, the Dow is now on track for its best week since 2011.

Context: US stocks closed higher on Wednesday, with the Federal Reserve and other central banks cutting interest rates to support their economies, and former Vice President Joe Biden taking the lead in securing the Democratic Party’s presidential nomination.

Details: The Dow jumped around 1,200 points on Wednesday, after having shed 800 points in the previous session. The index responded positively to the emergency rate cut decision by the Fed. The rally in stocks yesterday turned the Nasdaq 100 positive for the year, up 0.5% year to date. However, the Dow and S&P 500 are still down by around 5.1% and 3.1%, respectively, for the year.

The Dow spiked 4.5% to close at 27,090.86 on Wednesday. The S&P 500 climbed 4.2%, while the Nasdaq 100 gained 3.9%.

Joe Biden’s string of victories lifted healthcare stocks, with shares of United Health Group rising around 11%, Centene gaining more than 15% and Cigna closing 11% higher.

US lawmakers announced a deal to provide $8.3 billion in emergency funding to fight against the spread of the coronavirus in the country. The IMF also announced a $50 billion aid package for low income and emerging market countries to fight the COVID-19.

On the economic data front, ADP (Automatic Data Processing) reported an addition of 183,000 jobs by private sector employers. The ISM non-manufacturing gauge climbed to 57.3 in February, from 55.5 in January.

In corporate news, Abercrombie & Fitch’s shares climbed around 9% after the company reported better-than-expected quarterly earnings. Shares of Hewlett Packard Enterprise slipped around 3% due to the company’s downbeat first-quarter results.

Among commodities, April gold slipped 0.1% to close at $1,643 an ounce, while crude futures declined 0.9% to settle at $46.78 per barrel on Wednesday.

Why it matters: The rally in stocks could take a U-turn today. US stock futures are pointing towards a lower open this morning. Investors are awaiting key economic reports, including initial jobless claims and the all-important non-farm payroll report.

What to watch: US initial jobless claims, which increased by 8,000 to 219,000 in the week ended February 22, are expected to decline to 215,000 in the latest week. Analysts expect non-farm labour productivity to rise by an annualized 1.4% in the fourth quarter, versus a 0.2% drop in the earlier three-month period. Unit labour costs are likely to increase at an annualized 1.4% in the quarter. Preliminary estimates show a 0.1% decline in factory orders for January, versus a 1.8% rise in December.

Other Markets: Most European indices closed higher on Wednesday, with the FTSE 100, German 30 and French 40 up 1.45%, 1.19% and 1.33%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Spain’s consumer confidence, Mexico’s consumer confidence, Brazil’s car production and new vehicle registrations as well as the US Challenger job cuts and change in natural gas inventories.