Campbell Soup Company (CPB) currently sells for $41.68 per share. The stock has hovered between $35 and $65 for the past five years. This consumer packaged-goods company has acquired its fair share of businesses in recent years in an effort to stay modern with diverse food offerings.
Though Campbell Soup is certainly one of the older brands in existence, it still has fairly strong sales. Perhaps more important is the fact that the company is not resting on its laurels.
Campbell’s Sales
The company’s net sales increased slightly more than 15% on a year-over-year basis, reaching the $2.2 billion mark. The hike in sales from ongoing operations is partially attributable to the company’s acquisition of Snyder’s-Lance back in March of ’18. The snack food company’s offerings have helped diversify Campbell’s portfolio.
It is clear Campbell’s management is refocusing on its primary businesses, Campbell Meals and Beverages along with Campbell Snacks. Campbell divested from the Campbell Fresh division by way of selling its Garden Fresh Gourmet and Bolthouse Farms businesses. The company is hiking its prices and improving its supply chain to minimize the impact of cost inflation. The end result will be a stabilization of the company’s profitability.
What matters most is Campbell’s latest quarterly results exceeded expectations. This marks the third straight quarter in which Campbell has met or surpassed expectations. Though the company exceeded the Street’s anticipated adjusted earnings per share of 47 cents stemming from continuing operations, its 56 cent figure is still down about 5% from the same quarter in 2018. The solid financial figures detailed above have inspired Campbell to hike its profit forecast for the entire year. Company executives have also increased the adjusted earnings per share up five cents to $2.55. The previous expectation was $2.45.
Are There Chinks in Campbell’s Armor?
In short, yes. Those considering an investment in Campbell’s should monitor the business’s ready-to-serve soup segment. Sales in this pivotal category will probably stagnate or decrease as customers move away from processed food toward more natural offerings. The question is whether company executives can come up with a solid growth plan that helps boost its ready-to-serve soup sales across posterity.
Furthermore, the company’s top-line growth is nowhere near as solid as it looks at first glance. The company’s organic sales have leveled off from the year prior. Campbell’s spike in growth is partially driven by the aforementioned acquisitions. There is no guarantee Campbell will be able to continue its momentum as time progresses.
The fact that the company has not had much success in its quest to appeal to the nutrition and health-oriented millennial age cohort is concerning. After all, millennials are the largest age cohort with the baby boomers coming in a close second. If you are a millennial or know a millennial, take a moment to consider just how appealing Campbell’s offerings really are. Give this subject matter some thought, and you will likely reach the conclusion that soup is an old-fashioned food that millennials do not enjoy or consume nearly as frequently as their baby boomer parents or their grandparents.
It will not be easy convincing millennial consumers to develop an interest in soup, especially soups loaded with sodium, fat and the newly-stigmatized meat. If Campbell were to strike a deal with Impossible or Beyond Meat to add meat substitutes to its soups, making inroads with the millennial age cohort would prove that much easier.
What About the Snacks?
Campbell does not strictly sell soup, so there is some hope in expanding its customer base and appealing to younger customers. The acquisition of the aforementioned Snyder’s-Lance has helped Campbell enjoy moderate growth. Though Campbell had some execution and pricing difficulties after acquiring this snack provider, it appears as though it was a prudent business move.
The company has discontinued its Campbell Fresh offerings. This segment was limited by execution challenges, leading to considerable lost revenue. The losses stemming from Campbell Fresh are a large part of the reason why the company altered its yearly fiscal guidance. The soup-seller anticipates its yearly revenue to be around $9.08 billion as opposed to the previous expectation of $10 billion.
Buy, Sell or Hold?
It appears as though the society-wide push toward healthier eating has not altered Campbell’s products. Take a look at Campbell’s product lineup, and it becomes quite clear the company is not focused on providing healthy offerings. This is quite concerning considering low-sodium, low-fat food appears to be the wave of the future. Even more concerning is the fact that Campbell’s leadership has not indicated the company has made any headway toward soup made with meatless substitutes.
Current Campbell investors should consider selling or holding simply because Campbell Soup Company is not changing with the times. The bottom line is soup is no longer as popular as it was decades ago. Furthermore, soup laden with sodium, fat and unhealthy meat is not exactly enticing to the millennial crowd. Though securing millennial spending is not of the utmost importance in 2019, this age cohort will become increasingly important in the years to come.
Regards,
Ethan Warrick
Editor
Wealth Authority
