Campbell Up 3.1% Post Investor Day, 4 Key Plans On Track

“Change is the only constant” – this one liner summarizes the state of all consumer-driven industries at the moment, as consumers’ accelerated shift toward online shopping has hit several industries, like apparel/shoe, departmental stores, and the food industry among others. A major player in the food industry, Campbell Soup Company (NYSE:CPB) is also striving to keep up with these evolving trends, in order to serve consumers better and tap greater sales.

Moving on these lines, this convenience foods products behemoth provided details on its four key strategies at its annual investor day yesterday, alongside reiterating its fiscal 2017 and long-term forecasts.

Can Latest Plans Save CPB Stock?

Campbell’s four strategies include plans to win consumers’ confidence via real food and raised transparency; speedy e-Commerce and digital marketing endeavors; maintaining focus on portfolio diversification; and strengthening its footprint in the growing snacking space. Shares of the company grew 3.1% in yesterday’s trading session.

However, Campbell has slumped 17% in the last one year, underperforming the Zacks categorized Food – Miscellaneous/Diversified industry that lost 10.8%. This could be largely accountable to Campbell’s waning top line which hasn’t witnessed a single year-over-year improvement for quite some time now. So let’s delve deeper into the plans outlined at the investor day, and see if they can save the day for this Zacks Rank #4 (Sell) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.




Four Core Strategies in Detail

Focus on Real Food Philosophy & Transparency

Campbell remains focused on its real food philosophy, as part of which it plans to invest nearly $50 million to develop products as per the changing consumer preferences. Also, the company inked a deal with The Sage Project to reveal its ingredients online by leveraging Sage’s food data platform. Sage is engaged in offering online food labels, providing information on several attributes associated with food like ingredients, nutritional value and calories. Thus, partnership with Sage will enhance Campbell’s food transparency to its customers. Notably, Campbell is also on track to bring its real food philosophy to its soups category, and achieve significant results by the end of this year. In fact, it’s Well Yes! Soup will mark the company’s first product on Sage’s platform.

Robust Digital Endeavors Bode Well

Amazon.com, Inc.’s (NASDAQ:AMZN) takeover of Whole Foods Market, Inc. (NASDAQ:WFM) is testimony to the fact that e-Commerce has gained significant ground in the food industry. That said, Campbell is on track to strengthen its digital operations. Incidentally, the company announced plans to build an e-Commerce unit in North America, which will represent Campbell’s all three segments. Management appointed Shakeel Farooque to lead this e-Commerce team and anticipates delivering online sales of roughly $300 million in the next five years. Farooque’s past experience with behemoths like Amazon, eBay Inc. (NASDAQ:EBAY) and Kohl's Corporation (NYSE:KSS) is likely to benefit Campbell, given his combined knowledge of consumers and technology. Well, Campbell’s focus on e-Commerce is also evident from its recently announced $10 million investment in online meal kit firm, Chef’d.

Adding Organic Foods to Portfolio Should Lure Consumers

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. This is mainly due to consumers’ evolving preferences for healthy, fresh and organic food products. Thus, Campbell has been undertaking several steps to diversify its portfolio and expand in the fast-growing organic space. In this regard, the company recently announced plans to acquire leading organic broth and soup producer, Pacific Foods. This marked the company’s fifth buyout in the last five years. Other buyouts in this connection include Bolthouse Farms, Plums Organics and Garden Fresh Gourmet. Thanks to these buyouts, the company’s organic kitty currently ranks among the top 10 in the industry. Also, annual fresh products sales have reached approximately $1 billion, reflecting prospects of this category.

Concentration on Growing Snacks Unit

With the growing demand for snacks, Campbell plans to undertake significant expansion at its Global Biscuits and Snacks’ segment, in fiscal 2018. The company plans to solidify this segment’s footprint geographically, and also go beyond its existing biscuits and bakes snack items. The company plans to prepare snacks using real food ingredients, which is also in sync with its first strategy. Also, the company plans to introduce soups, small meals and fresh snacks, which are expected to augment overall sales by about $200 million in the next five years.

We believe that these strategies reflect Campbell’s commitment toward establishing a differentiated and significant position with the consumers’ community and in the food industry. In addition to elaborating on its strategic imperatives, management reaffirmed its fiscal 2017 and long-term goals, while it provided an update on its cost savings and cash flow targets for the fiscal.

Fiscal 2017 & Long-Term Outlook

Management anticipates sales growth for fiscal 2017 to range from negative 1% to flat. Adjusted EBIT is expected to rise 2–4% year over year, while gross margin is anticipated to be 38%. Adjusted earnings for the fiscal are envisioned to grow in the range of 3–5% to $3.04–$3.09 per share. Coming to cash flows from operations, Campbell expects generating roughly $1.25 billion this fiscal. Also, the company plans to achieve cost savings worth $310 million by the end of fiscal 2017.

Moving to the long term, management still projects organic sales growth in a range of 1–3%. Further, adjusted EBIT growth is envisioned in a band of 4– 6% and adjusted EPS is expected to grow 5–7% over the long term (both on a constant currency basis). Finally, the company continues to project cost savings from its ongoing initiatives to be around $450 million (roughly 6% of sales) by the end of fiscal 2020. Management plans to issue its fiscal 2018 outlook, along with its fourth-quarter fiscal 2017 results that are scheduled for Aug 31.

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