Campbell Soup Earnings: Unwavering Focus on Productivity Gains Bearing Fruit; Shares Undervalued

We surmise Campbell’s disciplined approach to enhance operational efficiencies was emphasized in its fiscal 2024 second-quarter results—adjusted gross margin ticked up 70 basis points (to 31.4%) against a 1% drop in organic net sales (to $2.5 billion). Specifically, the combination of surgical pricing, productivity improvements, and cost savings more than offset inflation, which was a 310-basis-point drag. We don’t anticipate the firm will deviate from its course; instead, we believe Campbell remains committed to extracting inefficiencies from its supply chain and distribution network, optimizing direct-to-store routes, and investing in automation. Importantly, we believe a portion of these efficiency gains will be redeployed to buoy brand investments, which we view as integral to maintaining its brand strength and retailer relationships (the crux of our wide moat rating). This underpins our long-term prospects for the business, which include low-single-digit annual organic sales growth and high-teens operating margins.