Campbell Soup Company (CPB - Free Report) has been losing ground for a while, thanks to dismal business categories and an unimpressive gross margin trend. These downsides have caused the stock to decline 7.9% in the past three months, while the industry fell 6.3%.
Nevertheless, Campbell is striving to stay afloat by adopting strategies like acquisitions, portfolio review and augmenting brands. Let’s take a closer look at the progress made by the company on these fronts, and see if these can help mitigate headwinds.
Efforts to Strengthen Portfolio and Savings
In an attempt to enhance portfolio and aid growth, Campbell remains keen on making acquisitions. In this respect, it concluded the buyout of Snyder's-Lance during third-quarter fiscal 2018, which marks the company’s biggest acquisition to date. Prior to this, the company acquired leading organic broth and soup producer, Pacific Foods, in a drive to expand in the fast-growing organic food space. Notably, contributions from both these buyouts drove Campbell’s top line by 24% and 25% during the second and the first quarters of fiscal 2019, respectively. The company is on track with integration of the buyouts and expects these to keep fueling its performance.
Additionally, we note that the company is carrying out strategic review of its portfolio, in order to focus on areas with significant growth prospects. Markedly, it plans to bring focus on two separate businesses in its key North American market — Campbell Snacks, and Campbell Meals and Beverages. Further, the company plans to divest non-key businesses — Campbell International and Campbell Fresh.
In sync with such plans, the company recently unveiled plans to divest the Garden-Fresh Gourmet business. The transaction is expected to close by the end of the fiscal third quarter, subject to certain customary closing conditions. Prior to this, the company had announced plans to sell the Everett refrigerated soup plant. Proceeds from the sale of these businesses will be utilized to curtail debt.
Apart from these, the company is on track with cost-saving efforts. It strives to build supply-chain efficiencies to reduce costs. Notably, during the fiscal second quarter, Campbell generated savings worth $50 million as part of its multi-year cost-savings program. With this, savings from the program totals $550 million. Furthermore, management anticipates generating cumulative annualized savings of $945 million by fiscal 2022 end. These factors, along with prudent investment and strategic efforts toward product innovation and brand building, are likely to continue fueling profitability.
Can Strategies Cushion Hurdles?
Campbell is grappling with soft U.S. soup sales for quite some time now. During the fiscal second quarter, sales in this category were flat year on year, as benefits from broth and ready-to-serve soups were countered by softness in condensed soups. Moreover, the company is struggling with dismal performance of the Campbell Fresh Segment, which has propelled it to divest the brands included in this unit.
Additionally, the company has been witnessing strained gross margins owing to adverse impacts from recent acquisitions, cost inflation, escalated supply-chain expenses and increased promotional spending. Markedly, it is enduring cost inflation for items like vegetables, steel cans, aluminum and resins, along with continued rise in transportation and logistics expenses. We note that rising costs have also eclipsed the performance of other food companies like Pilgrim’s Pride (PPC - Free Report) , General Mills (GIS - Free Report) and TreeHouse Foods (THS - Free Report) .
Persistence of such headwinds may hamper Campbell’s profitability in the forthcoming quarters. Nonetheless, we expect this Zacks Rank #3 (Hold) company’s efforts to build an efficient portfolio and enhance savings to offer substantial strength in countering its challenges. With such yielding motives in hand, we expect the company to revive investors’ confidence in the forthcoming periods.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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