Campbell (CPB) Chalks Out Strategic Plans, Updates Outlook

Campbell Soup Company (NYSE:CPB) made a number of announcements yesterday, which included its revised sales view for fiscal 2016, an update on its fiscal 2017 outlook, cost saving efforts and long-term goals, and its four key strategic plans. Before delving into the company’s strategic imperatives, let’s take a look at its future views and targets.

Future Views

Fiscal 2016 – Firstly, the company cut its fiscal 2016 sales outlook, to account for the latest recall of Campbell’s Bolthouse Farms protein drinks and the unfavorable shift of a major carrot consumer to a twin-source setup. Hence, management now anticipates net sales growth for the fiscal in a range of -2% to -1%, down from the previous guidance of -1% to flat. The updated view also includes a nearly 1 point positive impact from the Garden Fresh buyout, along with the adverse effect of currency movements, to an extent of about 2 points.

While the sales outlook was trimmed, the company reiterated its earnings before interest and taxes (EBIT) and earnings per share (EPS) outlook. Management continues to project EBIT and EPS growth in a band of 11%–13% each, with EPS envisioned between $2.93 and $3.00, for fiscal 2016.

Further, the company is on track with its supply chain productivity plan, along with its other cost saving initiatives that are expected to generate annualized savings of roughly $300 million by fiscal 2018. Additionally, Campbell projects cash flow from operations in fiscal 2016 to be approximately $1.3 billion.

Fiscal 2017 & Long-term Targets – Backed by these solid cost savings and productivity gains that are anticipated to counter inflation, Campbell expects adjusted gross margin to climb marginally in fiscal 2017. While the company projects cost of products sold (COPS) inflation of about 2%, it remains on track to achieve supply chain productivity benefits amounting to 3% of the COPS.

Moreover, management expects to procure additional savings worth $50 million in fiscal 2017, alongside making incremental share buybacks, only after meeting expenses related to other external developments for the future. Nonetheless, the company will offer a detailed financial view for fiscal 2017 with its fourth-quarter fiscal 2016 earnings results, slated to release on Sep 1, 2016.

Backed by these solid growth plans and the impressive strategies discussed below, the company reaffirmed its long-term organic sales and earnings goals. Organic sales are expected to rise in a range of 1%–3% in the long term, whereas currency neutral EBIT and adjusted EPS are envisioned to jump 4%–6% and 5%–7%, respectively.

Four Core Strategies

The company outlined four strategies, directed toward solidifying consumers’ faith by increasing transparency; maintaining focus on diversifying its portfolio; developing digital capacities and expanding in developing markets.

Campbell intends to raise its level of transparency about the food that it produces and the ingredients used. Per its latest food philosophy, the company aims to use familiar and pleasing ingredients from plants or animals, and prepare the food products through safe means. In this regard, the company also came up with a scorecard known as Campbell’s Real Food Index. This is designed to trace the progress on its ingredient commitments, which include plans to eradicate synthetic flavors and colors from its North American products (by 2018 end), and plans to use antibiotic-free chicken (to be executed in the next few years).

With respect to portfolio diversification, Campbell aims to focus on packaged fresh innovation, alongside enhancing organic and clean label product portfolio in center store. The company revealed plans to particularly invest in Campbell Fresh products, and remain on track with its new speedy innovations, an evidence of which was the introduction of Bolthouse Farms Plant Protein Milk.

Moving to the development of digital and eCommerce capacities, the company’s shift toward advertising via mobile and digital devices is well-evident from the fact that so far in fiscal 2016, around 40% of its advertising money was incurred on digital (compared with 19% in fiscal 2015).

Finally, Campbell unveiled intentions to strengthen the presence of its growing snacks brands across geographies, mainly in the Asian region. The company plans to boost the penetration of its major brands like Goldfish, Kjeldsens and Tim Tam in their home countries, alongside extending them to new markets. It also intends to extend its Pepperidge Farm premium breads and rolls to new West Coast markets.

Campbell has been focused on achieving profitable and sustainable growth for more than five years now, by leveraging its robust strategic plans and constant moves to enhance consumer experience. We believe that these aforementioned strategies reflect the Zacks Rank #3 (Hold) company’s commitment toward establishing a differentiated and significant position in the consumers’ community and the food industry.

Stocks to Consider

Better-ranked stocks worth considering in the same industry include Ingredion Incorporated (NYSE:INGR) , Post Holdings Inc. (NYSE:POST) and The J. M. Smucker Company (NYSE:SJM) , each carrying a Zacks Rank #2 (Buy).

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