Campbell’s says millennials really like their tomato soup

Campbell Soup Co. says it can thank millennials and their taste for tomato soup for its latest earnings results.

The iconic soup company posted better-than-expected earnings and sales in the fiscal second quarter, sending shares soaring more than 7% in Wednesday trading.

Mark Clouse, Campbell’s chief executive, said the company’s condensed soups, an item it is known for, and its broths, including the Pacific brand, gave the results a boost.

“Not only are we attracting new households, we are attracting younger households, which bodes well for the future,” Clouse said, according to a FactSet transcript of the company’s Wednesday morning earnings call.

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“In particular, on tomato soup, a good percentage of the gains came from millennials households. Frankly this is a trend that many did not think was possible.”

In 2017, Campbell CPB, +7.50% had a big soup problem. Now, the company says it is seeing momentum in not just tomato soup, but chicken noodle, cream of mushroom and cream of chicken.

In the most recent quarter, sales of soup in the U.S. were up 1%.

“Consumers responded favorably to our messaging and quality improvements,” said Clouse. “As a result, we saw improved lifts in the business across both eating and cooking varieties. Given the importance of the business, this was a key pillar in our strategy and was the single biggest priority going into the season.”

Among those quality improvements are the addition of fresh cream and the six tomatoes that go into the tomato soup.

Convenience has also been a factor for consumers that cuts across other parts of the company’s business, including items like Prego pasta sauce.

Clouse says “the simple assembly of ingredients to get a meal, and in particular with younger millennial households” is something that Campbell Soup has focused its efforts on.

Campbell Soup says sales in the meals and beverages category, which includes soup, totaled $1.22 billion, with total sales of $2.16 billion, down from $2.17 billion last year. The company said there was also strength in broth but results were offset by weakness in ready-to-serve soups, which are also sold under the Campbell’s brand.

Going forward, CFRA’s Arun Sundaram thinks the coronavirus outbreak could impact results.

“We think private label competition will ramp up in U.S. soup, and an unusually warm winter 2019-2020 could negatively impact overall U.S. soup consumption trends,” the CFRA note says. “We think consumer stockpiling related to COVID-19 could help sales in fiscal Q3 but may hurt sales in a future period.”

CFRA rates Campbell Soup stock sell with a $41 price target.

Campbell Soup shares have rallied 42.4% over the past year, outpacing the S&P 500 index SPX, +3.13% , which has gained 10.7% for the period.

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