Campbell Soup (CPB) Up 42% YTD: Snacks Business a Key Driver

Campbell Soup Company CPB is gaining from focus on the snacks business and robust saving efforts. These endeavors are enabling the company to counter hurdles, such as cost inflation, and stay in investors’ good books.

Markedly, this Zacks Rank #3 (Hold) stock has surged 42% so far this year, easily outpacing the industry’s growth of 13.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s take a closer look.

Campbell Soup’s Major Drivers

Campbell Soup has been taking robust steps to strengthen the presence of its snacks brands. This is evident from the company’s portfolio review, after which management stated that it aims to make it a leading snacks and simple meals firm. It is on track to transform the overall portfolio into a fast-growing snacking category, which is expected to form about half of Campbell Soup’s proforma sales in the future.

Markedly, Campbell Soup acquired Snyder's-Lance in the third quarter of fiscal 2018, which is enhancing the performance of the global biscuits and snacks portfolio. Evidently, sales at this division went up 3% to $967 million in fourth-quarter fiscal 2019. The segment gained from advancements in Pepperidge Farm bakery products, Kettle Brand potato chips, Snack Factory Pretzel Crisps, Late July snacks and Goldfish crackers. Management expects brands under the snacks category to continue boosting the company’s performance, backed by enhanced marketing and innovation.

On the flip side, the company exited the underperforming Campbell Fresh (C-Fresh) unit, which formed part of its discontinued operations in fourth-quarter fiscal 2019 results. Additionally, management is in the process of divesting Campbell International, which is likely to conclude in the first half of fiscal 2020. This will help the company increase focus on the core North American market.

Apart from this, Campbell Soup is progressing well with its cost-savings plan, which was announced in fiscal 2015. The company’s strategy of concentrating on supply-chain efficiencies, curtailing costs and reinvesting part of these savings in high-growth areas are likely to drive growth.

Management anticipates generating cumulative annualized savings from continuing operations of $850 million by fiscal 2022 end.

Wrapping Up

Like many other food companies such as General Mills GIS, Smucker SJM and TreeHouse Foods THS, high costs are a concern for Campbell Soup as well. During the fourth quarter of fiscal 2019, operating earnings in the Meals & Beverages segment declined 3% to $151 million, due to cost inflation and incentive compensation expenses. Management expects overall cost inflation of nearly 3% in 2020, which is likely to dent profits.

Though cost inflation and volatile currency movements are a concern, we expect the aforementioned strategies to continue fueling profitability.

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