Focus on fast-growing snacks category
Campbell Soup (CPB) is restructuring its products portfolio to expand into fast-growing “good-for-you” snacks category amid declining sales of its soups and beverages.
The company went the acquisition route like its peers Kellogg (K), Hershey (HSY), Conagra Brands (CAG), and General Mills (GIS). This strategy allows the company to expand into fast-growing avenues and align its product portfolio to more closely meet the needs of health-conscious consumers.
In December 2017, Campbell Soup announced the acquisition of Snyder’s-Lance. Snyder’s-Lance is one of the leading snack manufacturers in the US, featuring a strong portfolio of fast-growing brands including Pop Secret and Snack Factory Pretzel Crisps.
The chart above shows that the Campbell Soup is turning toward the fast-growing baked snacks category, which was strengthened with the acquisition of Snyder’s-Lance. The company is slowly decreasing its dependence on its soups, beverages, and simple meals categories, which have generated sluggish sales.
The Snyder’s-Lance acquisition is also expected to expand Campbell Soup’s distribution network by enhancing its exposure to e-commerce channels and convenience stores.
Also, the company expects to generate significant cost savings from the deal, which is likely to be accretive to its fiscal 2019 EPS.
Sales and profitability to take a near-term hit
Analysts expect Campbell Soup’s (CPB) top line to stay flat in fiscal 2018. Benefits from the Pacific Foods acquisition, new product launches, and continued growth in its Snacks segment are expected to be offset by continued sluggishness in soups and V8 beverages.
Higher commodity prices, lower carrot yield, and increased transportation and logistics costs are expected to hurt its profit margins. However, an anticipated benefit from lower tax rates and planned cost-savings of ~$400.0 million–$410.0 million could support the company’s EPS growth in fiscal 2018.