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Is CPB Stock a Buy, Sell or Hold Post Pop Secret's Divestiture?
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Campbell Soup Company (CPB - Free Report) has been strategically concentrating on bolstering its Snacks division, which has demonstrated strong resilience despite various challenges. As part of its efforts to enhance this focus, CPB has offloaded its Pop Secret popcorn business to Our Home, a company specializing in healthier snack options.
Recording net sales of roughly $120 million in fiscal 2024, the Pop Secret business divestiture is anticipated to be dilutive to Campbell Soup’s earnings per share (EPS) by nearly 4 cents in fiscal 2025.
Pop Secret’s Sale to Fuel CPB’s Snacks Unit
This divestiture will allow Campbell to further prioritize its Snacks segment, which contributed 46.3% of the company's sales in the third quarter of fiscal 2024. Over the past three years, the Snacks category has shown remarkable resilience, with minimal price sensitivity. Despite a recent slowdown driven by ongoing economic pressures on lower and middle-income consumers, the division still enjoys average consumption growth of 8%, outpacing both overall food and historical snack growth averages.
This slight deceleration is modest compared to other edible categories, underscoring the sustained consumer demand for snacks. Though sales in the segment decreased year over year in the third quarter of fiscal 2024 due to declines in lower-margin partner brands, contract manufacturing and fresh bakery, the company continued to see strength in its power brands, such as Goldfish and Late July.
With power brands now representing two-thirds of the company’s Snacks business, they provide a strong foundation for sustained growth. Campbell is on track to outline a clear strategy for accelerating growth in its power brands and optimizing the remaining parts of its existing Snacks portfolio. Despite the current challenges, the division's resilience and long-term growth potential make it a vital component of Campbell Soup's overall portfolio.
Strategic Moves Propel Campbell Soup Forward
Prudent acquisitions and divestitures have been instrumental to Campbell’s success story. The company acquired Sovos Brands in March 2024 and is reaping impressive gains from its addition. Sovos Brands' portfolio includes a diverse range of products, including pasta sauces, dry pasta, soups, frozen entrees, frozen pizza and yogurts, which are marketed under the brand names Rao’s, Michael Angelo’s and noosa.
Campbell Soup’s reported sales witnessed a 6% rise in the third quarter of fiscal 2024, attributed to the partial quarter sales from Sovos Brands. Specifically, Sovos Brands added 7 percentage points to the reported net sales growth, surpassing initial expectations. The performance of Sovos Brands, particularly Rao's, has been outstanding, with sales growing faster than expected, contributing positively to adjusted earnings before interest and taxes (EBIT). Management remains confident about the long-term sales growth of Sovos Brands, expecting it to be in the mid-single-digit range.
Campbell Soup anticipates gaining momentum in the fourth quarter, marked by steady year-over-year volume growth, double-digit increases in both adjusted EBIT and adjusted EPS and sustained progress in integrating Sovos Brands.
Driven by these upsides, shares of CPB have rallied 14.8% in the past three months compared with the industry’s growth of 3.9%. The company’s growth endeavors have also helped it surpass the broader Zacks Consumer Staples sector and the S&P 500’s respective growth of 3.9% and 6.2% in the same time frame.
Image Source: Zacks Investment Research
Is CPB Stock Free of Challenges?
Like other food companies such as General Mills (GIS - Free Report) , Conagra Brands (CAG - Free Report) and Flowers Foods (FLO - Free Report) , Campbell Soup remains affected by a dynamic macroeconomic scenario. The company is witnessing volatile consumer behaviors, especially among lower-income segments. The persistence of these headwinds could be a concern. CPB expects organic net sales growth to be nearly flat to down 1% in fiscal 2024. In its third-quarter earnings release, management stated that it was then tracking toward the midpoint of this updated organic sales growth view, indicating the consumer recovery pace.
Campbell Soup has also been witnessing cost inflation for a while. In the third quarter of fiscal 2024, the company witnessed core inflation in the low single digits and expects it to remain within this range for the remainder of fiscal 2024. Campbell Soup remains focused on managing areas of its portfolio affected by the rising cost of inputs, including tomatoes, olive oil and cocoa, as well as ongoing inflation in labor and warehousing expenses. However, the company’s productivity initiatives and cost-savings programs are likely to effectively balance the impact of inflation in the fourth quarter.
How Should CPB’s Investors Play?
Campbell Soup’s strategic focus on its Snacks division and the divestiture of non-core assets like Pop Secret demonstrates its commitment to optimizing its portfolio for long-term growth. The resilience of its power brands and the successful integration of Sovos Brands are positive indicators of future performance. However, ongoing challenges, such as volatile consumer behavior and cost inflation, cannot be ignored. Potential investors should weigh these near-term hurdles carefully, but current stakeholders may find it prudent to maintain their positions in this Zacks Rank #3 (Hold) company, given its overall prospects.
Image: Bigstock
Is CPB Stock a Buy, Sell or Hold Post Pop Secret's Divestiture?
Campbell Soup Company (CPB - Free Report) has been strategically concentrating on bolstering its Snacks division, which has demonstrated strong resilience despite various challenges. As part of its efforts to enhance this focus, CPB has offloaded its Pop Secret popcorn business to Our Home, a company specializing in healthier snack options.
Recording net sales of roughly $120 million in fiscal 2024, the Pop Secret business divestiture is anticipated to be dilutive to Campbell Soup’s earnings per share (EPS) by nearly 4 cents in fiscal 2025.
Pop Secret’s Sale to Fuel CPB’s Snacks Unit
This divestiture will allow Campbell to further prioritize its Snacks segment, which contributed 46.3% of the company's sales in the third quarter of fiscal 2024. Over the past three years, the Snacks category has shown remarkable resilience, with minimal price sensitivity. Despite a recent slowdown driven by ongoing economic pressures on lower and middle-income consumers, the division still enjoys average consumption growth of 8%, outpacing both overall food and historical snack growth averages.
This slight deceleration is modest compared to other edible categories, underscoring the sustained consumer demand for snacks. Though sales in the segment decreased year over year in the third quarter of fiscal 2024 due to declines in lower-margin partner brands, contract manufacturing and fresh bakery, the company continued to see strength in its power brands, such as Goldfish and Late July.
With power brands now representing two-thirds of the company’s Snacks business, they provide a strong foundation for sustained growth. Campbell is on track to outline a clear strategy for accelerating growth in its power brands and optimizing the remaining parts of its existing Snacks portfolio. Despite the current challenges, the division's resilience and long-term growth potential make it a vital component of Campbell Soup's overall portfolio.
Strategic Moves Propel Campbell Soup Forward
Prudent acquisitions and divestitures have been instrumental to Campbell’s success story. The company acquired Sovos Brands in March 2024 and is reaping impressive gains from its addition. Sovos Brands' portfolio includes a diverse range of products, including pasta sauces, dry pasta, soups, frozen entrees, frozen pizza and yogurts, which are marketed under the brand names Rao’s, Michael Angelo’s and noosa.
Campbell Soup’s reported sales witnessed a 6% rise in the third quarter of fiscal 2024, attributed to the partial quarter sales from Sovos Brands. Specifically, Sovos Brands added 7 percentage points to the reported net sales growth, surpassing initial expectations. The performance of Sovos Brands, particularly Rao's, has been outstanding, with sales growing faster than expected, contributing positively to adjusted earnings before interest and taxes (EBIT). Management remains confident about the long-term sales growth of Sovos Brands, expecting it to be in the mid-single-digit range.
Campbell Soup anticipates gaining momentum in the fourth quarter, marked by steady year-over-year volume growth, double-digit increases in both adjusted EBIT and adjusted EPS and sustained progress in integrating Sovos Brands.
Driven by these upsides, shares of CPB have rallied 14.8% in the past three months compared with the industry’s growth of 3.9%. The company’s growth endeavors have also helped it surpass the broader Zacks Consumer Staples sector and the S&P 500’s respective growth of 3.9% and 6.2% in the same time frame.
Image Source: Zacks Investment Research
Is CPB Stock Free of Challenges?
Like other food companies such as General Mills (GIS - Free Report) , Conagra Brands (CAG - Free Report) and Flowers Foods (FLO - Free Report) , Campbell Soup remains affected by a dynamic macroeconomic scenario. The company is witnessing volatile consumer behaviors, especially among lower-income segments. The persistence of these headwinds could be a concern. CPB expects organic net sales growth to be nearly flat to down 1% in fiscal 2024. In its third-quarter earnings release, management stated that it was then tracking toward the midpoint of this updated organic sales growth view, indicating the consumer recovery pace.
Campbell Soup has also been witnessing cost inflation for a while. In the third quarter of fiscal 2024, the company witnessed core inflation in the low single digits and expects it to remain within this range for the remainder of fiscal 2024. Campbell Soup remains focused on managing areas of its portfolio affected by the rising cost of inputs, including tomatoes, olive oil and cocoa, as well as ongoing inflation in labor and warehousing expenses. However, the company’s productivity initiatives and cost-savings programs are likely to effectively balance the impact of inflation in the fourth quarter.
How Should CPB’s Investors Play?
Campbell Soup’s strategic focus on its Snacks division and the divestiture of non-core assets like Pop Secret demonstrates its commitment to optimizing its portfolio for long-term growth. The resilience of its power brands and the successful integration of Sovos Brands are positive indicators of future performance. However, ongoing challenges, such as volatile consumer behavior and cost inflation, cannot be ignored. Potential investors should weigh these near-term hurdles carefully, but current stakeholders may find it prudent to maintain their positions in this Zacks Rank #3 (Hold) company, given its overall prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.