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Campbell Soup (CPB +5%) started off FY23 on a "mmm...mmm" good note. The food giant reported strong upside with its Q1 (Oct) results for both EPS and revs. What is notable is that this was CPB's largest EPS beat in the past two years. The company also increased FY23 guidance, although the Q1 upside accounts for much of that. CPB had been dealing with higher inflation for input costs but seems to have finally gotten a handle on it.

• What stood out was that both primary segments (Meals & Beverages; and Snacks) grew nicely. In the M&B segment (soup, Swanson, Prego, Pace, V8), sales rose a robust 15% yr/yr to $1.46 bln. What really helped here was a recovery in the supply chain. This allowed grocery retailers to replenish inventory heading into the critical holiday season. CPB also saw a marked recovery in its foodservice business as supply also improved in this important channel.
• CPB thinks its M&B segment is well positioned because research shows that consumers continue to cut back on out-of-home eating and are migrating from more expensive grocery categories. Consumers are now preparing about 80% of meals from home and they want simple at-home meals and quick-scratch cooking.
• On the Snacks side (Pepperidge Farm, Goldfish crackers, Snyder's, Lance), revenue also grew 15% yr/yr to $1.12 bln. This segment also benefitted from an improvement in the supply chain. Growth was fueled by its power brands, reflecting higher selling prices.
• Of note, CPB saw a strong result from Goldfish as CPB has taken steps to broaden the appeal of this iconic brand. Also, Pepperidge Farm cookies were a highlight as better supply allowed grocers to stock up ahead of the holidays.

In sum, the very strong results were fueled by a combination of inflation-driven pricing and supply chain / productivity improvements. Also, the underlying trend of people cooking more at home seems to be pretty durable. We had concerns that consumers would revert to eating out more but it seems saving money by eating at home is a key trend right now. CPB has been plagued in recent quarters by having to absorb higher food input costs. CPB has announced price increases in the past, but they take time to impact the P&L. However, this Q1 report shows that higher selling prices have finally caught up to offset these costs.