CPB:NYSE Campbell Soup Company

Introduction
Campbell is in the business of providing high quality soups, simple meals, beverages, snacks and packaged fresh meals. Led by Campbell's brand, the portfolio includes Pepperidge Farm, Bolthouse Farms, Arnott's, V8, Swanson, Pace, Prego, Plum, Royal Dansk, Kjeldsens and Garden Fresh Gourmet.

2nd Quarter Results for period ending 16/02/2018

• Net sales compared to prior year, organic sales decreased by 2 percent.
• Earnings before Interest and Taxes (EBIT) increased 19 percent and adjusted EBIT decreased 4 percent.
• Earnings per share (EPS) of $0.95; adjusted EPS increased 10 percent to $1.00

Campbell Fresh did not meet expectations. Sales did not recover and Campbell expects beverage performance to pick up in second half, turning back to profitability. Sales performance of Global Biscuits and Snacks, particularly Pepperidge Farm and Kelsen are doing well.

The acquisition of Pacific Foods were completed to increase the brand presence in the organic soup and broth market. The planned acquisition of Snyder's-Lance will expand the snacking business.

Gross Margin decreased from 37.4 percent to 35.1 percent. Marketing and selling expenses decreased 5 percent to $228 million due to lower advertising and consumer promotion expenses.

Net interest expense increased 14 percent to $32 million reflecting higher average interest rates on the debt portfolio and higher levels of debts.

The company gave a fiscal 2018 outlook on EPS to be increased by +2 to +4 percent or $3.10 to $3.17 per share.

Moat

• Branding
• Cost of finance is low because of the size of company

Operating Performance
Return on Assets 2017 is 11.4%
Return on Equity 2017 is 56.1%
Return on Invested Capital is 18.77%

Valuation
Price/Sales is 1.79
Price/Earnings of 16.14
Price/ Forward Earnings of 15.55
Earnings Yield 6.19%
EV/EBITA is 10.21
Fair Value is about USD 48 - USD 50

Latest updates
Campbell's update at CAGNY on 21st February triggered a steep 7% price decline. My guess is CEO Denise mentioned about the ongoing discussion with a key customer will cause the sales to be sluggish. This is due to the dispute with Walmart. Walmart wants to continue to fight with Amazon and will exert its purchasing power to pull down all prices. Campbell will need to pull down the prices or go home. Rising cost of production eat into Campbell's margin. The company needs to work on its cost saving campaign.

The market has already priced in a decline in margin on Campbell's products.