Is it a cup of cold soup?
Key Stats for Campbell Soup Company
| Ticker | CPB |
|---|---|
| Sector | Other Food Processing |
| Latest price | $55.37 |
| Value | $17,347M |
| Daily vol | $85M |
| Date | 15 June 2017 |
| Links | Yahoo Finance, SEC Edgar, campbellsoupcompany.com |
1. What it says on the tin?
Not really, Campbell's is quite a diverse a food company, with 3 distinct businesses:
- 55% of sales is the Americas Simple Meals and Beverages segment, which includes: Campbell's condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell's gravies, pasta, beans and dinner sauces; Plum food and snacks; V8 juices and beverages, and Campbell's tomato juice.
- (32% of sales) The Global Biscuits and Snacks segment includes Pepperidge Farm cookies, crackers, bakery and frozen products; Arnott's biscuits, and Kelsen cookies.
- (13% of sales) The Campbell Fresh segment 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-year end | 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 |
Operationally, they've had improving margins recently. But the last two years look tough at the EPS line, because of corporate costs, pensions, and restructuring. Though the year to July 2017 is expected to be markedly better!
And on an unrelated front, CPB is a good old American taxpayer, forking out 34% of earnings to Uncle Sam. i.e. they've not come up with some weird tax dodge, like other brands. ;)
Beyond the ops
Campbell's has $3bn of net debt. That is 2.4x it's latest operating profit. At the higher end of my comfort zone, but not concerning, at this stage. And it's not impacting dividends, which are reasonable. On top of that they to have a share repurchase program.
2. Tastier?
Although returns are reasonable, they are middle-to-bottom of the class on margins. Kraft is probably an outlier, but still, CPB does look a little less efficient.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Campbell Soup Company | $7,913M | 16% | 31% |
| Kraft Heinz Co | $26,281M | 32% | 6% |
| Unilever NV (ADR) | $59,128M | 18% | 33% |
| Mondelez International Inc | $25,882M | 21% | 6% |
| Kellogg Company | $12,873M | 20% | 39% |
| General Mills, Inc. | $15,741M | 21% | 36% |
| Hershey Co | $7,491M | 22% | 74% |
| Tyson Foods, Inc. | $36,824M | 10% | 18% |
| Conagra Brands Inc | $9,565M | 19% | 11% |
Looking at growth, it's also in the single-digit class, not double, and clearly this is impacting valuation. Though we can see firms like Tyson with lower margins and low growth having substantially lower prices, though TSN is partially a commodity play, so there's that to worry about there.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| CPB | $17,347M | 19x | 5% | 2% | 7% |
| KHC.O | $111,365M | 25x | 11% | 3% | 7% |
| UN | $163,715M | 24x | 11% | 3% | 7% |
| MDLZ.O | $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% |
| CAG | $16,578M | 23x | 14% | 2% | 6% |
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.
Perhaps that's a little mean, with the stock trading on 19x foreward earnings, given it's yo-yoed between 17x and 21x earnings the last 2 years.
Though they did miss earnings last quarter and they did on the analyst call that
Food companies certainly felt the pinch.
Why? Well they don't paint a nice picture, am afraid!
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.
In the soup
When the top line isn't growing and there is little evidence of substantial margin improvement in the near term, I find it hard to get excited.
So for now, it feels like there are tastier stocks elsewhere. :(
View the archive of Stock a Day posts at r/stockaday.
Disclosure:
I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare is a Chartered Financial Analyst.
Submitted June 16, 2017 at 12:08PM by shane_stockflare http://ift.tt/2sjI3Aq
