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Campbell's Snacks Business Turnaround to Take Time Amid Demand Headwinds, RBC Says

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Campbell's Snacks Business Turnaround to Take Time Amid Demand Headwinds, RBC Says

Campbell's (CPB) is unlikely to see a quick turnaround in its snacks business, with demand headwinds expected to persist well into next year, RBC Capital Markets said Tuesday.

On Monday, the packaged food company reiterated its full-year outlook after reporting mixed fiscal third-quarter results. Revenue in the company's meals and beverages and snacks segments decreased 4% each.

Campbell's is seeing "early signs of progress" in the snacks business and is taking additional steps to strengthen its salty snacks portfolio, Chief Executive Mick Beekhuizen said at the time.

"Although they are encouraged by some bright spots, it is evident that a recovery in the snacks business will not happen overnight," RBC's co-head of global consumer and retail research, Nik Modi, said in a note to clients Tuesday. "We think demand challenges will likely persist well into next year."

The brokerage lowered its price target on the Campbell's stock to $21 from $23 while maintaining its sector perform rating.

The company's shares were up 1.4% in Tuesday afternoon trade. The stock has slumped nearly 22% so far this year.

Campbell's management acknowledged that the simplification process will take time, with continued pressure in the short term, according to RBC. There was no clear timeline provided for stabilization, while the company's stock keeping unit rationalization may generate near-term revenue challenges, according to the note.

For the full year, the company continues to project adjusted earnings at $2.15 to $2.25 a share, while organic sales are seen falling by 1% to 2%.

The outlook now reflects the "initial impacts" from the Middle East conflict, especially higher logistics costs, Chief Financial Officer Todd Cunfer said on an earnings conference call Monday, according to a FactSet transcript. The company expects these expenses to be offset by a tariff refund benefit in the ongoing three-month period, according to Cunfer.

RBC lowered its full-year EPS outlook to $2.17 from $2.20 while maintaining its expectations for organic net sales to drop 2.2%, according to the note.

Campbell's is facing an operating environment that continues to be "challenging" from both a demand and cost perspective, Modi said. "Full-year guidance was maintained, though management pointed toward the lower end and indicated that (2027) could face elevated inflation throughout the year should the Middle East conflict continue."

Price: $21.88, Change: $+0.39, Percent Change: +1.79%

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