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Can Pacific Foods' Takeover Drive Campbell's (CPB) Top Line?
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Food products behemoth, Campbell Soup Company (CPB - Free Report) has been undertaking several steps to diversify its portfolio and expand in the fast-growing organic space. These endeavors became more prominent yesterday, when Campbell announced its contract to acquire leading organic broth and soup producer, Pacific Foods for $700 million in cash.
Well, Campbell Soup is striving to revive its top line, which hasn’t witnessed a single year-over-year improvement for quite some time now.
Owing to waning sales the company underperformed the Zacks categorized Food – Miscellaneous industry, in the last one year. Evidently, Campbell’s shares have plunged 21.5% in the last one year, as compared with the industry’s decline of 10.3%.
As Campbell is renowned for its canned foods, much of its sales debacle could be attributable to consumers’ changing eating patterns and their evolving preferences for healthy, fresh and organic food products. Incidentally, the organic food space that surged at a compound annual growth rate of 15.3% in the last four years, has become an over $11 billion category in the country. Amid such a scenario, the buyout of the aforementioned organic foods company is deemed fit.
Deal with Pacific Foods Bodes Well?
Pacific Foods is a Tualatin, OR-based company, which was founded almost three decades back. Apart from manufacturing organic broth and soup, the company also produces shelf-stable plant-based beverages and other meals and sides. With roughly 540 employees, Pacific Foods runs an authorized organic plant, where its namesake goods are manufactured.
Pacific Foods is a leading name in the natural foods space, with solid growth record and trailing 12 month sales of roughly $218 million, as of May 31. The company’s organic credentials make it popular among consumers, which is likely to help Campbell deliver products as per the changing consumer needs. Further, Pacific Food’s CEO – Chuck Eggert – will continue to supply the main ingredients for its products from his personal farms.
Pacific Foods will form part of Campbell Americas Simple Meals and Beverages segment, joining its namesake brand and other existing brands like V8, Swanson, Prego, Pace and Plum Organics. Sales at this segment dipped 2% year over year, in the last reported third quarter of fiscal 2017. This was accountable to softness in V8 beverages and soup sales, somewhat compensated by strength noted in Prego pasta sauces. Nevertheless, the segment contributed 53% to net sales in the quarter, which underscores its importance. The addition of Pacific Foods to this division is likely to be a perfect fit for Campbell.
The conclusion of this deal remains subject to regulatory clearance. Also, management at Campbell doesn’t expect any impact on its bottom line from this buyout in the first year, barring several expenses related to the purchase and integration of Pacific Foods.
Focus on Strategic Imperatives & Buyouts
Clearly, this acquisition goes in line with Campbell’s strategic imperatives, as part of which it had revealed plans to raise its level of transparency about the food that it produces and the ingredients used. Furthermore, with respect to portfolio diversification, Campbell decided to focus on packaged fresh innovation, alongside enhancing organic and clean label product portfolio in center store.
Also, this will mark the company’s fifth buyout in the last five years. The company remains committed to achieving growth through acquisitions. Incidentally, Campbell purchased Bolthouse Farms in 2012, after which it acquired organic baby-food firm Plum and biscuit firm Kelsen, in 2013. Finally, in 2015, the company added fresh salsa and hummus maker Garden Fresh Gourmet to its kitty. Both, Bolthouse Farms and Garden Fresh form part of the Campbell Fresh (C-Fresh) segment.
Bottom Line
With both the companies working around the real food philosophy, Pacific Foods’ buyout is likely to accelerate Campbell’s efforts to undertake innovations in the health and well-being space. This, in turn should expand Campbell’s organic food customer base and network, which we believe should boost the top line of this Zacks Rank #3 (Hold) stock.
Key Picks
Some better-ranked stocks worth considering in the same space include Nomad Foods Limited (NOMD - Free Report) , SunOpta, Inc. (STKL - Free Report) and B&G Foods, Inc. (BGS - Free Report) .
SunOpta, also flaunting a Zacks Rank #1, has long-term earnings per share growth rate of 15%.
B&G Foods, with long-term earnings per share growth rate of 10%, carries a Zacks Rank #2 (Buy).
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Image: Bigstock
Can Pacific Foods' Takeover Drive Campbell's (CPB) Top Line?
Food products behemoth, Campbell Soup Company (CPB - Free Report) has been undertaking several steps to diversify its portfolio and expand in the fast-growing organic space. These endeavors became more prominent yesterday, when Campbell announced its contract to acquire leading organic broth and soup producer, Pacific Foods for $700 million in cash.
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Well, Campbell Soup is striving to revive its top line, which hasn’t witnessed a single year-over-year improvement for quite some time now.
Owing to waning sales the company underperformed the Zacks categorized Food – Miscellaneous industry, in the last one year. Evidently, Campbell’s shares have plunged 21.5% in the last one year, as compared with the industry’s decline of 10.3%.
As Campbell is renowned for its canned foods, much of its sales debacle could be attributable to consumers’ changing eating patterns and their evolving preferences for healthy, fresh and organic food products. Incidentally, the organic food space that surged at a compound annual growth rate of 15.3% in the last four years, has become an over $11 billion category in the country. Amid such a scenario, the buyout of the aforementioned organic foods company is deemed fit.
Deal with Pacific Foods Bodes Well?
Pacific Foods is a Tualatin, OR-based company, which was founded almost three decades back. Apart from manufacturing organic broth and soup, the company also produces shelf-stable plant-based beverages and other meals and sides. With roughly 540 employees, Pacific Foods runs an authorized organic plant, where its namesake goods are manufactured.
Pacific Foods is a leading name in the natural foods space, with solid growth record and trailing 12 month sales of roughly $218 million, as of May 31. The company’s organic credentials make it popular among consumers, which is likely to help Campbell deliver products as per the changing consumer needs. Further, Pacific Food’s CEO – Chuck Eggert – will continue to supply the main ingredients for its products from his personal farms.
Pacific Foods will form part of Campbell Americas Simple Meals and Beverages segment, joining its namesake brand and other existing brands like V8, Swanson, Prego, Pace and Plum Organics. Sales at this segment dipped 2% year over year, in the last reported third quarter of fiscal 2017. This was accountable to softness in V8 beverages and soup sales, somewhat compensated by strength noted in Prego pasta sauces. Nevertheless, the segment contributed 53% to net sales in the quarter, which underscores its importance. The addition of Pacific Foods to this division is likely to be a perfect fit for Campbell.
The conclusion of this deal remains subject to regulatory clearance. Also, management at Campbell doesn’t expect any impact on its bottom line from this buyout in the first year, barring several expenses related to the purchase and integration of Pacific Foods.
Focus on Strategic Imperatives & Buyouts
Clearly, this acquisition goes in line with Campbell’s strategic imperatives, as part of which it had revealed plans to raise its level of transparency about the food that it produces and the ingredients used. Furthermore, with respect to portfolio diversification, Campbell decided to focus on packaged fresh innovation, alongside enhancing organic and clean label product portfolio in center store.
Also, this will mark the company’s fifth buyout in the last five years. The company remains committed to achieving growth through acquisitions. Incidentally, Campbell purchased Bolthouse Farms in 2012, after which it acquired organic baby-food firm Plum and biscuit firm Kelsen, in 2013. Finally, in 2015, the company added fresh salsa and hummus maker Garden Fresh Gourmet to its kitty. Both, Bolthouse Farms and Garden Fresh form part of the Campbell Fresh (C-Fresh) segment.
Bottom Line
With both the companies working around the real food philosophy, Pacific Foods’ buyout is likely to accelerate Campbell’s efforts to undertake innovations in the health and well-being space. This, in turn should expand Campbell’s organic food customer base and network, which we believe should boost the top line of this Zacks Rank #3 (Hold) stock.
Key Picks
Some better-ranked stocks worth considering in the same space include Nomad Foods Limited (NOMD - Free Report) , SunOpta, Inc. (STKL - Free Report) and B&G Foods, Inc. (BGS - Free Report) .
Nomad Foods has seen its earnings estimates for 2017 trend upward in the last 30 days. Also, the stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SunOpta, also flaunting a Zacks Rank #1, has long-term earnings per share growth rate of 15%.
B&G Foods, with long-term earnings per share growth rate of 10%, carries a Zacks Rank #2 (Buy).
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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