Today’s bull of the day is in a great position as it has the ability to pass wholesale price increases on to customers who have no choice but to accept them and keep buying.
Campbell Soup Company (CPB) Is do not take advantage of that kind of pricing power in the market and it weighs heavily on earnings expectations.
Frankly, it almost seems anti-American to make Campbell the bear of the day. I guess there’s hardly anyone reading this who didn’t grow up eating Campbell’s Chicken Noodle Soup when they were home sick after school or enjoying a grilled cheese sandwich with it. Campbell’s tomato soup. It’s a delicious, nutritious, and affordable meal. The brand is so iconic that the cans labeled in red are what most people envision when you say “soup”.
The relatively low retail cost which is an asset for tight family budgets is also a handicap in an environment of rising commodity prices. The prices of things like chicken and tomatoes have gone up, but there is an upper limit on how much you can charge for a can of soup before customers just walk to another aisle of the grocery store and go. ‘buy something else.
It is a basic economic concept. The price elasticity of a good is directly related to the number of substitutes available.
With PoolCorp (POOL), we find that consumers do not have a readily available substitute. They must choose between paying the company’s prices or seeing their expensive investment turn into a swamp.
The supermarket is a very common example of Econ 101 for the concept of substitution. When the price of a good goes up, consumers can simply choose something else that is often just a few feet away. People buy a parcel food – we need it to survive, after all – so that manufacturers can still thrive in an environment of intense price competition and low margins due to high volumes.
These manufacturers are vulnerable to fluctuations in the prices of raw materials which are largely beyond their control.
After beating Zacks’ consensus earnings estimate for thirteen straight quarters, Campbell reported disappointing earnings and earnings last week, making $ 0.52 / share on $ 1.984 billion in sales. Analysts were expecting $ 0.55 per share and $ 1.998 billion, respectively. These failures weren’t very significant, but the reduction in focus that came with them was.
CEO Mark Clouse noted the continued strength of brand loyalty, but also noted an inflationary environment, shrinking margins and short-term supply chain challenges. The company cut its annual profit forecast from a range of $ 3.03 to $ 3.11 / share to $ 2.90 – $ 2.93 / share.
If you’re an investor in tech-growth stocks, a company that lowers its forecast by thirteen cents might seem like a rounding error, but for a huge food conglomerate, it matters a lot. Cost reduction efforts promise to limit the damage, but the income and profit situation going forward can easily be described as “disappointing”.
Image source: Zacks Investment Research
These red boxes will be on the shelves of your local store for a long time, but from an investor’s perspective, there is so much growth available elsewhere that it doesn’t make much sense to own CPB stocks right now. .
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Campbell Soup Company (CPB): Free Stock Analysis Report
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