The Campbell Soup Company will sell its international business and its fresh refrigerated unit after several months of strategic review and pressure from hedge fund investors to sell the entire company. Speculation has been mounting over whether or not the long-standing American soup and soup company will go on sale amid a long period of falling sales.
It is not clear if the plan will appease activist investor Dan Loeb, whose Third Point LLC hedge fund announced a 5.65 percent stake on August 9 and immediately pressed for a sale of the entire company to a competitor as “the only justifiable outcome,” according to Reuters.
Shares of the 149-year-old company fell 4.3 percent in pre-market trading.
Campbell’s interim President and CEO Keith McLoughlin says: “Campbell’s Board of Directors considered a full slate of strategic options, including optimizing the portfolio, divesting businesses, splitting the company, and pursuing a sale. The Board concluded that, at this time, the best path forward to drive shareholder value is to focus the company on two core businesses in the North American market with a proven consumer packaged goods business model. Importantly, the Board remains open and committed to evaluating all strategic options to enhance value in the future.”
“Our plan will build upon our existing strengths. Our new leadership team will concentrate on significantly improving operational discipline through a rigorous management model that aligns the enterprise from strategy through execution. We are moving forward with a sense of urgency to complete these changes in fiscal 2019, setting the foundation for sustainable, profitable growth in fiscal 2020 and beyond,” McLoughlin explains.
The soup company also says that as part of the review, it is raising its overall cost savings target to US$945 million by fiscal 2022.
Building a focused North American company
Campbell says it will continue to provide consumers with "great tasting, high-quality real food."
Across the portfolio, the company’s brands will leverage consumer insights and trends to drive relevance, including health and well-being, snacking and convenience. Each of Campbell’s brands will be managed within a focused and disciplined framework of two differentiated portfolio roles:
Drive Profitable Growth – These powerful and exciting brands will be managed to grow disproportionately relative to the categories in which they compete. These include leading brands such as Cape Cod, Goldfish, Kettle Brand, Lance, Late July, Pace, Pacific, Pepperidge Farm Farmhouse and Milano cookies, Prego and Snyder’s of Hanover. Investments in innovation and consumer engagement will enable these brands to leverage evolving consumer tastes and trends.
Maximize Margin & Cash Flow – These at-scale brands will be managed to generate consistent profit and cash flow. These include leading brands such as Campbell’s Soup, Pepperidge Farm fresh bakery, SpaghettiOs and V8. These brands will be managed with disciplined focus and aligned investments to support their strong market positions, to optimize operating margins and cash flow and to fulfill their equally important role in Campbell’s portfolio.
Campbell has engaged Goldman Sachs and Centerview Partners to commence a process to divest its Campbell International and Campbell Fresh businesses in a manner that maximizes value. Campbell International consists of Arnott’s and the Kelsen Group, along with the company’s manufacturing operations in Indonesia and Malaysia and its businesses in Hong Kong and Japan. Campbell Fresh includes Bolthouse Farms, Garden Fresh Gourmet and the company’s refrigerated soup business. Fiscal 2018 net sales of these businesses totaled approximately US$2.1 billion.
Campbell has been grappling with waning demand for its classic soup as consumers opt for healthier options. The company's shares have fallen 20 percent over the past year, according to CNBC.
In May, CEO Denise Morrison retired immediately after the company reported flat sales. This came as shares in Campbell Soup – which late last year acquired the Snyder's-Lance snack company in a US$4.87 billion deal said to be the soup company's largest ever in its 148-year history – were down 11 percent at US$34.85 in early trading.
Campbell has adjusted its long-term targets to reflect the company’s actions and more focused portfolio.
These are:
• Organic net sales growth of 1 to 2 percent
• Adjusted EBIT growth of 4 to 6 percent
• Adjusted EPS growth of 7 to 9 percent
Also, Campbell expects a net debt to adjusted EBITDA ratio of 3.0x by 2021.
These targets reflect expectations beyond fiscal 2019 and assume the completion of the planned divestitures of Campbell International and Campbell Fresh.
