Campbell Soup Company (CPB) recently entered into an agreement to acquire Bolthouse Farms from private-equity firm Madison Dearborn Partners, LLC. This inorganic move of Campbell will enhance its brand portfolio and presence in the U.S. packaged fresh foods market.
The deal has been finalized at $1.55 billion in cash and expected to close by late summer 2012. As of April 29, 2012 the company had cash and cash equivalent of $383 million, which we believe was not sufficient to fund the acquisition. So, Campbell would fund the acquisition through short- and long-term borrowings and will operate it as a separate business unit. Campbell expects the acquisition to be accretive to the company’s bottom-line and will add nearly 5 cents to 7 cents in fiscal 2013 earnings per share.
As awareness for healthy fresh foods is increasing in the U.S., the transaction is expected to be the best strategic fit for Campbell as Bolthouse is one of the leading fresh foods and beverages sellers in the U.S. The transaction is expected to facilitate Campbell in enhancing its market share in the $12.0 billion packaged fresh food market.
The products of Bolthouse will compliment Campbell’s V8 beverage segment, which is expected to boost consolidated sales of the company to $1.2 billion, representing 10% of the market share.
Other companies in the beverage segment are also moving toward healthier products. Recently, PepsiCo Inc. (PEP) announced its decision to start selling yogurt in the U.S. very soon.
Based in Bakersfield, California, Bolthouse has approximately 100 years of experience in developing, manufacturing, and marketing packaged fresh foods in the U.S. The company is one of the market leaders in fresh carrots, premium beverages and refrigerated salad dressing in the U.S. Bolthouse markets and sells its products under brands Bolthouse Farms, Earthbound Farms and Green Giant.
Following the transaction, Campbell expects to deliver its full fiscal 2012 results as per its earlier guidance ranges. The company expects fiscal 2012 sales growth to remain at the lower end of its earlier guidance range of flat to 2%. EBIT for the period is anticipated to decline at the lower end of 7% to 9% range while earnings per share may decline at the upper end of the guidance range of 5% to 7%.
Our Recommendation
We believe that Campbell’s prudent investment and strategic initiatives toward product innovation and brand building will lead to an increase in its customer base and profitability. Moreover, the company’s continuous focus on research and development to further differentiate its higher-margin sauce brands will strengthen its position in international markets. However, rising commodity costs, intense competition from other established players and exposure to unfavorable foreign currency fluctuations may undermine the company’s growth prospects.
Campbell, which currently competes with General Mills Inc. (GIS) and H.J. Heinz Company (HNZ), has a Zacks #3 Rank, implying a short-term Hold rating on the stock. Moreover, we have a long-term Neutral recommendation over the stock.
Campbell Soup is one of the world's leading manufacturers of convenience food products. Furthermore, a strong portfolio of well-established brands, including Campbell’s, Erasco, Liebig, Pepperidge Farm, V8, Pace, Prego, Swanson, and Arnott’s offer a competitive edge to the company and strengths its well-established position in the market.
CAMPBELL SOUP (CPB): Free Stock Analysis Report
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