Campbell Soup's (NYSE:CPB) recent results were impressive. The outstanding results provided relief to the investors. Campbell came back strongly, crushing analysts’ estimates, posting outstanding earnings and revenue figures. Campbell’s latest acquisition of Kelsen proved to be a growth driver for the company, improving its profitability. These strategic moves led Campbell to expand its boundaries to China as well. Given the competition with General Mills (NYSE:GIS) and Kellogg (NYSE:K), investors should remain alert and watchful whether Campbell could continue this momentum in 2014 or not.
A Strong Comeback
Though Campbell had a soft start to fiscal 2014, it came back strongly with robust quarterly results. Good sales led the gross margin to improve to 37.5%. The Kelsen acquisition also contributed to Campbell’s revenue, adding $92 million to it. The company is well positioned for the future and is expecting further addition to its top line. Campbell also expects sales to grow in the range between 4% and 5% this year.
- Warning! GuruFocus has detected 4 Warning Signs with CPB. Click here to check it out.
- CPB 15-Year Financial Data
- The intrinsic value of CPB
- Peter Lynch Chart of CPB
It is all positive for Campbell from all quarters, and the company is taking steps to keep this positivity going.
Looking to Improve
Campbell is focusing on various aspects to improve its profitability. It is mainly focusing on increasing soup sales. To hold a competitive edge in the market, the company has launched eight new soups, including its first Latin-inspired soup. Campbell is looking forward to boosting sales of its soup. Campbell is focusing on China as it is a big potential market. The soup company strategically acquired Kelsen, which led the company to gain market share in China and other developing countries. As a result of the Kelsen acquisition, Campbell saw 14% growth in the baking and snacks segment. The company is expecting more gains as the acquisition is integrated further.
With the improving industry trends, Campbell is expecting to gain momentum in its operations, leading to improved profitability. In the previous quarter, its core business saw weakness due to prevailing weakness in the U.S consumer market. Campbell is also investing in the promotion of its new products and the Bolthouse farms brand. Also, the company had to recall some of its plum organic products.
However, Campbell’s core business has started to gain momentum, resulting from the late timing of the holiday season. Though Campbell had a tough time as a result of increased spending on marketing and promotion, yet the weakness was offset by an outstanding performance in the sausage business. Campbell is expecting positive returns arising from aggressive advertising and promotions made in the past. Moving forward, Campbell is also expecting to increase sales of sweet biscuits in areas such as Indonesia and Australia, expecting them to add more value to the company’s stock in future.
Analyzing the Competition
In this competitive environment, Campbell’s investment in marketing, new products, and the Kelsen acquisition should help it grab market share from other food companies such as General Mills and Kellogg. Neither Kellogg nor General Mills, for instance, have made the organic or veggie investments that Campbell has. This is an added advantage for Campbell, which it can explore more to be more competent with its peers. Reports have revealed that Campbell’s penetration in the retail environment is increasing continuously, which helps it hold a cutting edge against peers such as General Mills and Kellogg in this space.
Looking at the key statistics, Campbell stands costliest among the three. But looking at the growth in Plum Organics and Kelsen brands Campbell can outperform in the future, so it can be a better pick. Moving ahead, Kellogg is the cheapest of the three, but it is facing weakness in both the cereal and snack market. Also, General Mills is seeing weakness in the cereal business and a drop in the sales of its Greek yoghurt Yoplait. Looking at every aspect, Campbell still stands profitable among the three, making it a better choice.
Campbell looks promising. It is making some good investments and so it can be a good buy for your portfolio.