Campbell (CPB) Hits Red Zone: What's Wrong With The Stock?

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult. However, if both the share price and estimates are falling, it may be time to get rid of the security before more losses hit your portfolio.

It seems that Campbell Soup Company (NYSE:CPB) is one such stock, which entered the red territory lately, thus worrying investors. Shares of this Zacks Rank #4 (Sell) company have dropped 5.2% over the past one month, highlighting its bearish track.

As a matter of concern, Campbell succumbed to an earnings miss in fourth-quarter fiscal 2016, thus ruining its ten-quarter-long trend of either meeting or beating estimates. Moreover, results declined year over year as benefits from the Garden Fresh buyout were more than offset by adverse currency movements and weak organic sales.

The weak organic sales were attributable to soft Campbell Fresh performance that stemmed from a fall in carrot and carrot ingredients sales coupled with the voluntary recall of Bolthouse Farms Protein PLUS drinks. The product recall and lower carrot sales, along with higher promotional expenditure also weighed upon the gross margin, which contracted 80 basis points in the reported quarter. This also broke the company’s five-quarter-long record of posting adjusted gross margin expansion.

Apart from this, Campbell remains prone to currency fluctuations due to its exposure to the international markets. Evidently, the company’s results in the fourth quarter of fiscal 2016 were somewhat impacted by adverse foreign currency translations. Though management expects this headwind to have a nominal impact on the company’s fiscal 2017 performance, it still remains a hurdle.

We believe that all these factors caused a downtrend in the Zacks Consensus Estimate for fiscal 2017 and the first quarter, which slipped 2.6% and 3%, respectively. Moreover, the stock price is down nearly 5%, since the earnings announcement.

While management was disappointed with the final quarter’s outcome, it remains on track to improve Campbell Fresh’s long-term performance and augment overall sales in fiscal 2017. Given these factors, the solid profits earned in fiscal 2016 and the confidence in the company’s long-term potential, management announced a 12% hike in its quarterly dividend to boost investor sentiment.

However, whether Campbell will live up to its commitments with regard to its strategic plans remains a wait-and-watch story. Until then, investors can count on better-ranked food stocks like Cal-Maine Foods, Inc. (NASDAQ:CALM) , Omega Protein Corporation (NYSE:OME) and Tate & Lyle (LON:TATE) plc (OTC:TATYY) , each with a Zacks Rank #1 (Strong Buy).

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