Campbell Soup Company is Mmm Mmm Good for Income Portfolios

Campbell Soup Company (NYSE: CPB) price action fell 7% following the fourth quarter earnings report, but income investors should cheer the news. Campbell Soup Company is a high-yield value among consumer staples stocks (NYSEARCA: XLP), a buy-and-hold name for income investors, and it just went on sale. Yes, fourth quarter results were only in line with expectations and forecasts were lukewarm, but neither is worth a single-digit drop in stock prices, especially with risky names back in favor. The drop is driven more by the CEO's comment than anything else and even that's not as bad as it sounds. The company says inflationary pressures are still a risk, but growth is still expected on the high and low numbers and there is also the possibility of outperformance.

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" With previous pricing actions fully reflected on (the) radius and elasticities expected to be slightly above fiscal 2022 levels, the company expects sales growth in both divisions.The company expects better supply chain execution and disciplined investments in its brands to drive market share recovery. Productivity and cost reduction initiatives will continue to play an important role in mitigating inflation, which is expected to remain high."

Campbell Soup Company canned by inflation?

Campbell Soup Company had a strong quarter with revenue of $1.99 billion, up 6.4% from a year ago. Revenue also topped Marketbeat.com consensus figures, but by a narrow margin, and pricing played a significant role. The company says price increases of 14% more than offset a 4% drop in volume and a 3% increase in promotional spending, but did not say whether additional price increases would be forthcoming. On a segment basis, the Meals and Snacks segments reported net growth of 6% with different results in terms of volume and promotional spend. The Snacks segment saw its volume decline by 3% compared to 6% for Meals, but this came at the cost of greater promotional activity, focused on the segment.

When it comes to margin, the news is mixed, with GAAP margins shrinking significantly and the adjusted margin increasing. The mitigating factor is that GAAP margins have been deeply impacted by changes in pension-related accounts and other one-time events that do not reflect the underlying business. Adjusted margin widened at the gross and operating levels and left Adjusted EPS of $0.56 up 8% year over year and in line with expectations. The takeaway, however, is that the adjusted operating margin did not widen as much as expected and did not reflect the weak outperformance margin on net income. This weakness, however small, is also reflected in the advice and has contributed to souring the sentiment.

The company is steering F2023 revenue to a range of 4% to 6% versus consensus of 2.77%. The range is a bit wide but well above the consensus numbers and supported by the pricing actions put in place over the past year. The bad news is that the margins won't widen to match and the adjusted EPS of $2.85 to $2.95 doesn't compare well to the consensus of $2.92. The takeaway here is that forecasts are still in line with expectations and leave some room for outperformance, which is no reason for the stock to fall as much as it has. The stock is trading at just 16.5x earnings and earning 3.15% return at this level, making it one of the best value-return combinations of the bunch, so any further declines will most likely be limited. Kraft-Heinz (NASDAQ: KHC) stands out as a better combination at 14X and 4.25% yield, but only just.

The Technical Outlook: Campbell Soup Company Falls in Support

Campbell Soup Company's price action has fallen sharply, but it is still sitting above a firm support level in the $45 region. This level coincides with a seemingly strong support level that formed earlier this year and should be able to keep prices from falling further. Otherwise, CPB shares could drop into the $42 range where they would have higher value and higher yield.