Morningstar

Campbell's Top Line Continues to Cool

We don't expect the trend to abate anytime soon for this wide-moat packaged-food maker.

Securities In This Article
Campbell Soup Co
(CPB)

Sales growth has proved elusive across the packaged-food landscape over the past several quarters, and wide-moat

We’ve long held that brand investment (in terms of bringing value-added new products to market and touting that fare to consumers) is crucial to differentiating products in this competitive category, reigniting top-line performance, and supporting brand intangible assets (particularly retail relationships). However, Campbell again pulled back the reins on marketing and advertising spend (tumbling 12% to just 10% of sales, down from nearly 12% in the year-ago quarter). While this reduction contributed to a 190-basis-point expansion in adjusted operating margins to 16.9%, we don’t believe using this lever to bolster profitability is prudent for the long-term health of the business (and it may ultimately impair its retail relationships).

We intend to review our underlying assumptions and will likely ratchet our $53 fair value estimate down by a low- to mid-single-digit percentage to reflect a bleaker near-term sales outlook, but don’t foresee a material change in our long-term forecast (calling for 2% sales growth and operating margins approaching 19% by the end of our 10-year explicit forecast). While shares traded down following results, the risk/reward doesn’t strikes us as sufficient to warrant building a position at this time.

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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