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Will Soft Top-Line Trends Hurt Campbell's (CPB) Q4 Earnings?

Campbell Soup Company CPB is slated to release fourth-quarter fiscal 2017 results on Aug 31. The question lingering in investors’ minds is whether this convenience foods behemoth will be able to post a positive earnings surprise in the quarter to be reported. Campbell reported negative earnings surprise of 7.8% in the last quarter and has a mixed record of earnings surprises in preceding quarters. So, let’s see how things are shaping up prior to this announcement.

Campbell Soup Company Price and EPS Surprise
 

Campbell Soup Company Price and EPS Surprise | Campbell Soup Company Quote

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 55 cents, compared with 46 cents reported in the year-ago period. We note that the Zacks Consensus estimate has remained stable over the last 30 days. Further, analysts polled by Zacks expect revenues of roughly $1.7 billion, up marginally from the year-ago quarter.

Factors at Play

Campbell Soup has been struggling to revive its top line, which hasn’t witnessed a single year-over-year improvement for quite some time now. This has also caused the company’s shares to decline 10.7% so far this year, compared with the industry's 6.1% drop.



Incidentally, the company’s results declined year over year and also lagged the Zacks Consensus Estimate in the last quarter. Management cited that the tough macroeconomic scenario in the food industry, wherein sales remained generally soft due to lower consumption led to the dismal quarter. In fact, consumer spending grew at its lowest rate, in about eight years — which considerably hampered the top line. Also, results were marred by continued competition from the rising eCommerce trends — a major retail hurdle that is expected to linger and pressurize grocery and mass networks.

Apart from this, persistent weakness across the Campbell Fresh (C-Fresh) division has long been a deterrent. In this regard, the company has been undertaking various initiatives to revive C-Fresh’s performance. While these efforts are likely to help the segment recover, management continues to expect capacity constraints through the final quarter, which we believe is likely to hurt the overall top line. Given a soft quarter and the tough operating environment, management lowered its fiscal 2017 sales outlook, anticipating sales growth to range from negative 1% to flat, compared to the old forecast of flat to a 1% increase.

Nevertheless, the company is on track with its four core plans, including focus on real food philosophy and transparency; undertaking robust digital endeavors; adding organic foods to portfolio and concentrating on growing its snacks unit. Moreover, Campbell’s strategy of concentrating on supply chain efficiencies, along with cutting costs is likely to drive growth. The company has generated solid results from its three-year cost savings program, which led management to raise the lower end of its EPS and EBIT views for fiscal 2017. Adjusted earnings for the fiscal are envisioned to grow in the range of 3-5% to $3.04-$3.09 per share, whereas Adjusted EBIT is expected to rise 2-4% year over year. However, we cannot ignore the aforementioned obstacles and thus prefer remaining on the sidelines for the time being.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Campbellis likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.

While Campbell has an Earnings ESP of +0.79%, the company currently carries a Zacks Rank #4 (Sell). Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions. The combination of Campbell’s unfavorable Zacks Rank and positive Earnings ESP makes surprise prediction difficult.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Burlington Stores, Inc. BURL has an Earnings ESP of +3.23% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Big Lots, Inc. BIG has an Earnings ESP of +0.72% and a Zacks Rank #2.

Ollie's Bargain Outlet Holdings, Inc. OLLI has an Earnings ESP of +1.35% and a Zacks Rank #2.

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Ollie's Bargain Outlet Holdings, Inc. (OLLI): Free Stock Analysis Report
 
Campbell Soup Company (CPB): Free Stock Analysis Report
 
Big Lots, Inc. (BIG): Free Stock Analysis Report
 
Burlington Stores, Inc. (BURL): Free Stock Analysis Report
 
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