Key Stats for Campbell Soup Company
Ticker: CPB
Latest price: $53.60
Value: $16,315M
Daily Volume: $85M
Links: Yahoo Finance, SEC Edgar, campbellsoupcompany.com
1. What’s on the label?
Campbell’s, certainly most widely known for its soup brand, is a fairly diversified food processing company, with three core businesses:
- 55% of CPB’s revenue stream is majorly comprised of its Simple Meals and Beverages segment which, as the name implies, is pretty plain in the calorie department but has a good representation of household brands: Campbell’s soups (both canned and ready-to-go), Swanson broth and stocks, Prego pasta sauces, Pace Mexican sauces, Plum food and snacks, V8 juices and beverages, and Campbell’s tomato juice. The segment also includes various gravies, pasta, beans and dinner sauces that go un-branded to capture the slice (or ladle) of the market that, for whatever reason, don’t go for name-brand products.
- Next, the Global Biscuits and Snacks segment is home to 32% of CPB’s revenue and includes Pepperidge Farm cookies, crackers, bakery and frozen products; Arnott’s biscuits, and Kelsen cookies.
- Finally, the Campbell Fresh segment (which is doing less than well) was launched to appeal to the post-Recession consumer who is interested in more organic-oriented consumption. This portion of the business includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips, and the United States refrigerated soup business.
Looking at the financials, the strong dollar hasn’t helped recently at the top line and volumes have been flat.
| July | 2012A | 2013A | 2014A | 2015A | 2016A | 2017E |
|---|---|---|---|---|---|---|
| Revenue | $7.2bn | $8.1bn | $8.3bn | $8.1bn | $8.0bn | $7.9bn |
| EPS | $1.76 | $2.25 | $2.74 | $2.13 | $1.81 | $3.05 |
Author’s note: This table provided by TablePress. If it looks terrible on your device please take it up with them.
Operationally, they’ve had improving margins recently. But the last two years look tough at the EPS line because of corporate costs, pensions, and management restructuring. 34% of earnings are put towards taxes which strikes me as atypical – don’t get me wrong, that’s not an unreasonable figure for a business of this size but the reality that CPB is actually paying the government is pretty outstanding. Amazon, take note.
Where’s that can opener?
Campbell’s has $3bn of net debt. That is 2.4x it’s latest operating profit. It’s at the higher end of most analysts’ comfort zones but methinks it shouldn’t be concerning at this stage. Dividends aren’t being impacted, the share buyback is still in play, and revenue projections for Q3 are a tad more achievable than Q2.
2. How’s the soup stack up?
Although returns are reasonable, margins leave something to be desired.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Campbell Soup Company (CPB) | $7,913M | 16% | 31% |
| Kraft Heinz Co (KHC) | $26,281M | 32% | 6% |
| Unilever NV (UN) | $59,128M | 18% | 33% |
| Mondelez International Inc (MDLZ) | $25,882M | 21% | 6% |
| Kellogg Company (K) | $12,873M | 20% | 39% |
| General Mills, Inc (GIS) | $15,741 | 21% | 36% |
| Hershey Co (HSY) | $7,491M | 22% | 74% |
| Tyson Foods, Inc (TSN) | $36,824M | 10% | 18% |
Growth is also in the single-digit class, not double, which is impacting valuation. TSN is something of a commodity play so they get to be the exception to the rule.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | Free Cash Flow Yield |
|---|---|---|---|---|---|
| CPB | $17,447M | 19x | 5% | 2% | 7% |
| KHC | $111,365M | 25x | 11% | 3% | 7% |
| UN | $163,715M | 24x | 11% | 3% | 7% |
| MDLZ | $69,385M | 22x | 10% | 2% | 5% |
| K | $25,742M | 19x | 6% | 3% | 8% |
| GIS | $33,848M | 19x | 6% | 3% | 9% |
| HSY | $24,341M | 24x | 8% | 2% | 5% |
| TSN | $22,391M | 13x | 6% | 1% | 12% |
3. What’s Wall Street or the Market say?
The professionals on Wall Street have a $57.64 for Campbell Soup Company which is just 5% above the current price. Their recommendation to clients is Hold.
With the stock trading on 19x forward earnings and having splashed between 17x and 21x earnings the last 2 years a Hold position seems premature. Though Campbell’s missed earnings in Q2, they give the following reason in their report:
Consumers entered 2017 facing a variety of interrelated pressures and complexities from economic shifts, delayed tax refunds and general uncertainty. Many consumers continued to struggle financially, especially lower income and younger shoppers. Additionally, the retailer environment continues to be very aggressive, with e-commerce and value players applying increased pressure on grocery and mass channels and we do not anticipate this trend to abate anytime soon.
My first instinct on the tax refund bit is that the finance folks are passing the buck to the IRS but it’s possible that the portion of the American population that is predisposed to being Campbell’s best customers may also benefit the most from a timely tax refund. Soup isn’t exactly the most elastic good so I have to wonder if those from lower economic strata are more likely to receive a tax refund and, if so, whether or not they’re more inclined to use the financial windfall to purchase soup. The earnings call should have contained more references to e-commerce opportunities but they still seem standoffish.
Is this a soup-er stock?
When the top line isn’t growing and there is little evidence of substantial margin improvement in the short term it’s hard to get excited.
There are tastier stocks elsewhere.