On Sep 26, 2014 we issued an updated research report on Campbell Soup Company (CPB) after the company reported its fourth-quarter fiscal 2014 results.
We are impressed with Campbell’s fourth-quarter results wherein its adjusted earnings of 49 cents per share came in line with the Zacks Consensus Estimate and marked a year-over-year improvement of 14%. The bottom-line results mainly benefited from strong revenue growth along with its brand expansion and cost containment strategies. Net sales increased 7% to $1,852 million in the quarter compared with $1,723 million in the prior-year quarter.
Campbell’s focus on enhancing the North American soup and simple meal business, and expanding overseas operations bode well for future growth. We believe that the company’s prudent strategic initiatives and investment in product innovation and brand building will increase its customer base and profitability.
Further, the company’s focus on improving its brand portfolio is evident from its acquisitions and joint ventures. Campbell acquired three new growth engines in fiscal 2013, including Bolthouse Farms, Plum Organics and the Kelsen Group, which cater to combined sales of nearly $1 billion. Further, the company has developed two joint ventures in Mexico with Grupo Jumex and Conservas La Costena that will enhance Campbell’s manufacturing and distribution capabilities as well as its presence in the global market.
However, rising commodity costs, intense competition with players such as General Mills, Inc. (GIS), Mondelez International, Inc. (MDLZ) and Diamond Foods, Inc. (DMND), and exposure to foreign currency fluctuations continue to be challenging factors for the company, which may undermine its operating performance.
Moreover, the North American food industry has been witnessing sluggish growth and slowdown in consumption over the last few quarters. The food industry is witnessing changes in consumer preferences (for example, toward health and wellness products) as well as spending shift toward more economical products. Therefore, we are cautious about the stock’s future performance.
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