Shares of Campbell Soup Company (CPB - Free Report) rallied 9.4% yesterday on hearsay of a possible takeover by The Kraft Heinz Company (KHC - Free Report) . While both companies remained silent, sources revealed that Kraft Heinz looks keenly interested in buying Campbell Soup, which has been struggling with its soups and C-Fresh businesses for quite some time.
These headwinds have been hurting Campbell’s top line for more than a year now, as a result of which this Zacks Rank #5 (Strong Sell) stock has tumbled 17.7% in a year, wider than the industry’s decline of 7.3%. Also, Campbell is struggling with strained gross margins, due to input cost inflation, escalated supply-chain expenses (particularly in C-Fresh) and promotional spending (especially in Americas Simple Meals and Beverages).
These factors, along with a soft C-Fresh performance, led to a disappointing third-quarter fiscal 2018. Unfortunately, management expects its ongoing challenges to persist, which along with its increased investment spending is likely to hurt fiscal 2019 performance. These factors led to a lowered earnings outlook for fiscal 2019.
However, during the third-quarter conference call, Campbell’s interim CEO, Keith McLoughlin, revealed plans to bring the company back on track by carrying out a complete review of the company’s strategic plans, portfolio alignment, resource allocation and cost of capital, among others. Per sources, this strategic business review could also include a conceivable divestiture or division of the company’s operations. In fact, there have been speculations that apart from Kraft Heinz, Campbell could also get buyout proposals from General Mills (GIS - Free Report) , if it puts itself up for sale.
As for the alleged buyout by Kraft Heinz, reports suggest that Campbell may not be a strategic fit for the company. This is because Kraft Heinz itself has been struggling with its top line, owing to shift in consumer preference toward natural and organic ingredients over packaged and processed food. Thus, adding Campbell may not solve Kraft Heinz’ top-line issue, though it may augment the latter’s bottom line. Notably, Kraft Heinz has been making constant attempts to enhance its performance, through cost and productivity improvement efforts along with innovation and marketing strategies.
All said, let’s see what’s in store for these food companies and if the aforementioned speculations actually surface. Talking of speculations, we had another one on similar lines, last week. Incidentally, there were rounds that Conagra Brands (CAG - Free Report) is trying to strike a deal to buy Pinnacle Foods . If the consolidation materializes, it is likely to create a robust frozen foods entity, at a time when demand for this category is booming. However, both Conagra and Pinnacle Foods remained silent on the matter.
While Conagra has a Zacks Rank #4 (Sell), both Pinnacle Foods and Kraft Heinz carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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