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Campbell Soup to Acquire Pacific Foods: Will Its Stock Rebound?

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Jul. 7 2017, Published 5:20 a.m. ET

Campbell Soup stock

Recently, Campbell Soup (CPB) announced that it plans to acquire Pacific Foods, an organic broth and soup maker, in an all-cash deal worth $700 million. Following the announcement, the company’s stock rose 2% in after-hours trading. The move is in line with the company’s effort to transform its portfolio according to consumers’ changing needs and demands.

Consumers have shifted towards nourishing foods. Pacific Foods has a strong portfolio of organic, healthy, and well-being products that will help Campbell Soup address consumers’ growing demand and lift its sales.

Pacific Foods, which generated about $218 million in sales in the trailing 12 months as of May 31, will become part of the company’s Americas Simple Meals and Beverages segment after the deal closes.

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Relief for investors?

Campbell Soup is struggling. The company has witnessed sluggish top and bottom line performances. Campbell Soup’s performance disappointed investors—reflected through an ~15% fall in its stock on a YTD (year-to-date) basis. Weak volumes, higher commodity costs, and increased promotional spending are hurting the company’s sales and profitability. In contrast, Campbell Soup’s peers Kellogg (K), Kraft Heinz (KHC), and Mondelez (MDLZ) managed to expand their margins through cost-saving initiatives despite sales deleverage.

Campbell Soup’s business segments aren’t performing well in fiscal 2017 due to a slowdown in demand for packaged foods and private label brands gaining traction in the soup category. Given the segments’ lackluster performance in the past three quarters, management expects sales to remain flat or fall 1% in fiscal 2017.

However, the company’s next fiscal results could benefit from the acquisition of Pacific Foods. The acquisition would expand the company’s portfolio of well-being products and help target younger customers. Organic foods are witnessing healthy growth compared to other packaged foods, which should supplement Campbell Soup’s top line growth rate.

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