Despite a slight decrease in sales in the recent quarter, higher selling prices have offset lower volumes at Campbell Soup, a venerable and well-known firm.
The company continues to find savings following its major acquisition. This has reduced annual costs for its businesses significantly. It also recently agreed to acquire a popular pasta sauce maker, which is expected to bolster annual sales and reduce annual costs by eliminating overlapping functions.
Meanwhile, the stock trades at a reasonable 13.9 times the company’s 2024 earnings forecast.
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CAMPBELL SOUP CO. (New York symbol CPB; www.campbellsoupcompany.com) last raised your quarterly dividend with the February 2021 payment. Investors now receive $0.37 a share, up 5.7% from $0.35. The new annual rate of $1.48 yields a solid 3.5%.
Your dividend has now grown an average 1.1% annually over the last 5 years and Campbell Soup’s TSI Dividend Sustainability Rating is Above Average.
Under its new strategic plan, which began in 2018, Campbell sold most of its international and refrigerated-foods businesses. That let it focus on canned soups, pasta and V8 vegetable juices. Campbell also kept its snack food operations. They were significantly expanded in March 2018 when the company paid $6.1 billion for snack-foods maker Snyder’s-Lance.
In its fiscal 2024 first quarter, ended October 29, 2023, the company’s sales fell 2.2%, to $2.52 billion from $2.58 billion a year earlier. That matched the consensus forecast. Higher selling prices (up 3%) offset lower volumes (down 5%).
Rising food ingredient and other costs also cut the company’s earnings before one-time items in the quarter by 10.8%, to $0.91 a share from $1.02. However, that beat the consensus estimate of $0.88.
Value Stocks: Campbell Soup’s savings should reach $1bn as sales rise through acquisitions
Campbell continues to find savings in the wake of the Snyder’s-Lance acquisition. So far, it has reduced annual costs for its continuing businesses by $895 million. It expects those yearly savings to reach $1 billion by the end of fiscal 2025.
The company also recently agreed to acquire Sovos Brands Inc. (Nasdaq symbol SOVO), the maker of Rao’s pasta sauces, for $2.7 billion. It expects to complete the purchase in 2024.
The new operations will add roughly $990 million to Campbell’s annual sales of $9.3 billion. Eliminating overlapping functions should also cut $50 million from its annual costs by the end of the second year.
For fiscal 2024, Campbell still expects its sales will improve by about 1% (excluding Sovos). It also expects its earnings will rise between 3.0% and 5.0%, to between $3.09 and $3.15 a share. The stock trades at 13.9 times the midpoint of that range. That’s a reasonable multiple considering the company’s strong brands and market share.
Recommendation in Wall Street Stock Forecaster: Campbell Soup Co. is a buy.
